UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 40-F

(Amendment No. 1)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

 

  OR

 

ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended _____________ Commission File Number: _____________

 

High Tide Inc.
(Exact name of Registrant as specified in its charter)

 

Alberta, Canada   5990   N/A
(Province or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code)
  (I.R.S. Employer
Identification No.)

 

Unit 112, 11127 – 15 Street N.E.
Calgary, Alberta
Canada T3K 2M4
(403) 770-9435
(Address and telephone number of Registrant’s principal executive offices)

 

CCS Global Solutions, Inc.
530 Seventh Avenue, Suite 508
New York, New York 10018
(800) 300-5067

 

(Name, address (including zip code) and telephone number (including
area code) of agent for service in the United States)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Shares   HITI   The NASDAQ Stock Market LLC

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None

 

For annual reports, indicate by check mark the information filed with this Form:

 

  Annual Information Form   Audited Annual Financial Statements

 

Indicate the number of outstanding shares of each of the Registrant’s classes of capital or common stock as of the close of the period covered by the annual report: Not applicable.

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes              ☐   No              ☒

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

 

Yes              ☐   No              ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

 

 

 

 

EXPLANATORY NOTE

 

High Tide Inc. (the “Company” or the “Registrant”) is a Canadian issuer eligible to file its registration statement pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.The Company filed a Registration Statement on Form 40-F (the “Registration Statement”) on March 21, 2020.

 

The Company is filing this Amendment No. 1 to the Registration Statement to (i) revise Exhibit No. 99.26 to include the required auditor’s report therein, (ii) include additional exhibits, each of which is incorporated by reference in this Registration Statement on Form 40-F and (iii) amend the exhibit references under the heading “Principal Documents” and other sections. No other amendment to the Registrant’s Registration Statement on Form 40-F is being effected hereby.

 

FORWARD LOOKING STATEMENTS

 

The Exhibits incorporated by reference into this Registration Statement of the Registrant contain forward-looking statements that reflect management’s expectations with respect to future events, the Registrant’s financial performance and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of the words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “would”, “could”, “likely”, “potential”, “proposed” and other similar words (including negative and grammatical variations), or statements that certain events or conditions “may” or “will” occur, and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

 

Forward-looking information includes, among other things, information regarding:

 

the competitive and business strategies of the Registrant;

 

the intention to grow the business, operations and potential activities of the Registrant;

 

the intention to maximize the utilization of the Registrant’s existing assets and investments;

 

the expected production capacity of the Registrant;

 

the expected demand for the Registrant’s products;

 

the expected category growth of the Registrant’s products;

 

the expected number of licensed cannabis stores in Canada and its Provinces;

 

the success of the entities that the Registrant acquires and the Registrant’s collaborations;

 

the market for the Registrant’s current and proposed products, as well as the Registrant’s ability to capture market share;

 

the anticipated timing for the release of expected product offerings;

 

the development of affiliated brands, product diversification and future corporate development;

 

expectations with respect to the Registrant’s product development, product offering and the expected sales mix thereof;

 

the ability of the Registrant to source components, products and inventory;

 

the Registrant’s satisfaction of international demand for its products;

 

the Registrant’s plans with respect to importation and exportation;

 

the Registrant’s expectations with respect to harvest;

 

the competitive conditions of the industry and the Registrant’s market expertise;

 

whether the Registrant will have sufficient working capital and its ability to obtain financing required in order to develop its business and continue operations;

 

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the applicable laws, regulations, licensing and any amendments thereof related to the cultivation, production and sale of cannabis product in the Canadian, U.S and other international markets;

 

the applicable laws and regulations, and the potential time frame for the implementation of such laws and regulations, to legalize and regulate medical and adult-use cannabis (and the consumer products derived therefrom) internationally;

 

the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;

 

the anticipated future gross sales and margins of the Registrant’s operations and the potential for significant growth or losses;

 

the potential for the Registrant to record future impairment losses;

 

the performance of the Registrant s business and operations;

 

the Registrant’s ability to capitalize on the U.S. market;

 

future steps to be taken in response to COVID-19; and

 

the ability of the Registrant to continue to attract, develop, motivate and retain highly- qualified and skilled employees.

 

Readers are cautioned that the above list of cautionary statements is not exhaustive.

 

These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in the forward-looking statements. Applicable risks and uncertainties include, but are not limited to, those identified under the heading “Risk Factors” on page 37 of the Annual Information Form for the year ended October 31, 2020, attached as Exhibit 99.149 to this Registration Statement and incorporated herein by reference, and under the heading “Risks Assessment” on page 16 of the Registrant’s Management’s Discussion & Analysis for the year ended October 31, 2020, attached as Exhibit 99.141 to this Registration Statement and incorporated herein by reference, and in other filings that the Registrant has made and may make with applicable securities authorities in the future.

 

By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Importantly, forward-looking statements are estimates reflecting Management's current expectations and beliefs, and are based upon certain assumptions that Management believes to be reasonable based on the information currently available to Management, including, but not limited to, the assumptions that:

 

current and future Management will abide by the business objectives and strategies from time to time established by the Registrant;

 

the Registrant will retain and supplement its Board and Management, or otherwise engage consultants and advisors, having knowledge of the industries (or segments thereof) within which the Registrant may from time to time participate;

 

the Registrant will have sufficient working capital and the ability to obtain the financing required in order to develop its business and continue operations;

 

the Registrant will continue to attract, develop, motivate and retain highly qualified and skilled employees;

 

no adverse changes will be made to the regulatory framework governing cannabis, taxes and all other applicable matters in the jurisdictions in which the Registrant conducts its business from time to time, and any other jurisdiction in which the Registrant may conduct its business in the future;

 

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the Registrant will be able to generate cash flow from operations, including, through the retail sale of cannabis and cannabis products, and the manufacture and distribution of smoking accessories and cannabis lifestyle products;

 

the Registrant will be able to execute on its business strategy, as in place from time to time;

 

the Registrant will be able to meet the requirements necessary to obtain and/or maintain its governmental authorizations and permits;

 

general economic, financial market, regulatory and political conditions in which the Registrant operates will remain the same;

 

the Registrant will be able to compete in, and remain competitive within, the cannabis industry;

 

cannabis prices will not decline materially;

 

the Registrant will be able to effectively manage anticipated and unanticipated costs; and

 

the Registrant will be able to maintain internal controls over financial reporting and disclosure, and procedures in order to ensure compliance with applicable laws and regulations.

 

No assurance can be given that these expectations will prove to be correct and such forward-looking statements in the Exhibits incorporated by reference into this Registration Statement should not be unduly relied upon. The Registrant’s forward-looking statements contained in the Exhibits incorporated by reference into this Registration Statement are made as of the respective dates set forth in such Exhibits. Such forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made. In preparing this Registration Statement, the Registrant has not updated such forward-looking statements to reflect any change in circumstances or in management’s beliefs, expectations or opinions that may have occurred prior to the date hereof. Nor does the Registrant assume any obligation to update such forward-looking statements in the future. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

 

DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

 

The Registrant is permitted, under a multijurisdictional disclosure system adopted by the United States, to prepare this Registration Statement in accordance with Canadian disclosure requirements, which are different from those of the United States. The Registrant has historically prepared its consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, which differ in certain respects from United States generally accepted accounting principles (“US GAAP”) and from practices prescribed by the SEC. Therefore, the Registrant’s financial statements filed with this Registration Statement may not be comparable to financial statements prepared in accordance with U.S. GAAP.

 

PRINCIPAL DOCUMENTS

 

In accordance with General Instruction B.(1) of Form 40-F, the Registrant hereby incorporates by reference Exhibits 99.1 through 99.166, inclusive, as set forth in the Exhibit Index attached hereto.

 

In accordance with General Instruction D.(9) of Form 40-F, the Registrant has filed the written consent of the experts named in the foregoing Exhibits as Exhibits 99.153 and 99.154 as set forth in the Exhibit Index attached hereto.

 

TAX MATTERS

 

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this registration statement on Form 40-F.

 

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DESCRIPTION OF COMMON SHARES

 

The required disclosure is included under the heading “Description of Capital Structure” in the Registrant’s Annual Information Form for the fiscal year ended October 31, 2020, attached hereto as Exhibit 99.149.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Registrant has no off-balance sheet arrangements (as that term is defined in paragraph 11(ii) of General Instruction B to Form 40-F) that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

CURRENCY

 

Unless otherwise indicated, all dollar amounts in this Registration Statement are in Canadian dollars. The exchange rate of Canadian dollars into United States dollars, on October 31, 2020, based upon the daily average closing rate as quoted by the Bank of Canada, was U.S.$1.00 = Cdn$1.3745. The exchange rate of Canadian dollars into United States dollars, on March 10, 2021, based upon the daily average closing rate as quoted by the Bank of Canada, was US$1.00 = Cdn$1.2637.

 

CONTRACTUAL OBLIGATIONS

 

The following table summarizes the undiscounted contractual obligations of the Registrant as of October 31, 2020:

 

    Total     Less than 1
year
    1-3 years     3-5 years     Greater than
5 years
 
    (Cdn$000)     (Cdn$000)     (Cdn$000)     (Cdn$000)     (Cdn$000)  
Accounts payable and accrued liabilities   $ 6,421     $ 6,421            -            -             -  
Notes payable   $ 4,730     $ 3,660     $ 180     $ 890       -  
Convertible debentures   $ 32,790     $ 16,463     $ 10,106     $ 6,221       -  
Lease obligations   $ 21,554     $ 3,564     $ 6,892     $ 4,022     $ 7,076  
Total   $ 65,495     $ 30,108     $ 17,178     $ 11,133     $ 7,076  

 

NASDAQ CORPORATE GOVERNANCE

 

A foreign private issuer that follows home country practices in lieu of certain provisions of the listing rules of the Nasdaq Stock Market LLC (the “Nasdaq Stock Market Rules”) must disclose the ways in which its corporate governance practices differ from those followed by domestic companies. As required by Nasdaq Rule 5615(a)(3), the Registrant will disclose on its website, https://www.hightideinc.com/, as of the listing date, each requirement of the Nasdaq Stock Market Rules that it does not follow and describe the home country practice followed in lieu of such requirements.

 

UNDERTAKING

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to the securities registered pursuant to Form 40-F or transactions in said securities.

 

CONSENT TO SERVICE OF PROCESS

 

The Registrant has concurrently filed a Form F-X in connection with the class of securities to which this Registration Statement relates.

 

Any change to the name or address of the Registrant’s agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

 

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SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  HIGH TIDE INC.
     
  By: /s/ Raj Grover
    Name: Raj Grover
    Title: President and Chief Executive Officer

 

Date: April 1, 2021

 

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EXHIBIT INDEX

 

The following documents are being filed with the Commission as Exhibits to this Registration Statement:

 

Exhibit No.   Description
     
99.1*   MD&A dated for the year ended October 31, 2019
99.2*   News Release dated November 7, 2019
99.3*   News Release dated November 15, 2019
99.4*   News Release dated November 21, 2019
99.5*   Report of exempt distribution excluding Schedule 1 of 45-106F1
99.6*   News Release dated November 27, 2019
99.7*   News Release dated December 5, 2019
99.8*   Share Purchase Agreement dated December 9, 2019
99.9*   News Release dated December 10, 2019
99.10*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated December 19, 2019
99.11*   News Release dated December 27, 2019
99.12*   Loan Agreement dated January 6, 2020
99.13*   News Release dated January 7, 2020
99.14*   News Release dated January 7, 2020
99.15*   Early Warning Report dated January 9, 2020
99.16*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated January 16, 2020
99.17*   News Release dated January 27, 2020
99.18*   News Release dated January 28, 2020
99.19*   News Release dated January 31, 2020
99.20*   Condensed Interim Consolidated Financial Statements for the three months ended January 31, 2020 and 2019
99.21*   MD&A for the three months ended January 31, 2020 and 2019
99.22*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated February 6, 2020
99.23*   News Release dated February 14, 2020
99.24*   News Release dated February 21, 2020
99.25*   ON Form 13-502F1 (Class 1 and 3B Reporting Issueers – Participation Fee) dated February 28, 2020
99.26*   Audited Annual Financial Statements dated February 28, 2020
99.27*   AB Form 13-501F1 (Class 1 and 3B Reporting Issuers – Participation Fee) dated February 27, 2020
99.28*   51-109FV1 – Certification of annual filings – CFO (E) dated February 28, 2020
99.29*   51-109FV1 – Certification of annual filings – CEO (E) dated February 28, 2020
99.30*   News Release dated March 2, 2020
99.31*   News Release dated March 31, 2020
99.32*   52-109FV2 – Certification of Interim filings – CFO (E) dated March 30, 2020
99.33*   52-109FV2 – Certification of Interim filings – CEO (E) dated March 30, 2020
99.34*   News Release dated April 6, 2020
99.35*   News Release dated April 8, 2020
99.36*   News Release dated April 13, 2020
99.37*   News Release dated April 20, 2020
99.38*   News Release dated April 22, 2020
99.39*   Condensed Interim Consolidated Financial Statements for the three and six months ended April 30, 2020 and 2019
99.40*   MD&A for the three and six months ended April 30, 2020 and 2019
99.41*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated May 1, 2020
99.42*   News Release dated May 4, 2020
99.43*   News Release dated May 8, 2020
99.44*   News Release dated May 14, 2020
99.45*   Notice of the meeting and record dated, dated May 21, 2020
99.46*   News Release dated May 25, 2020
99.47*   News Release dated June 9, 2020
99.48*   News Release dated June 15, 2020
99.49*   News Release dated June 17, 2020
99.50*   52-109FV1 – Certification of Interim filings – CFO (E) dated June 16, 2020

 

6

 

 

99.51*   52-109FV1 – Certification of Interim filings – CEO (E) dated June 16, 2020
99.52*   Notice of Meeting dated June 19, 2020
99.53*   Management Information Circular dated June 19, 2020
99.54*   Form of Proxy
99.55*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated July 2, 2020
99.56*   Security Agreement dated July 22, 2020
99.57*   Debt Restructuring Agreement dated July 22, 2020
99.58*   News Release dated July 24, 2020
99.59*   News Release dated July 31, 2020
99.60*   Letter from former auditor dated July 31, 2020
99.61*   Notice of Change of Auditor dated July 31, 2020
99.62*   Condensed Interim Consolidated Financial Statements for the three and nine months ended July 31, 2020 and 2019
99.63*   MD&A for the three and nine months ended July 31, 2020 and 2019
99.64*   Letter from Ernst & Young regarding Change of Auditor Notice dated July 31, 2020
99.65*   News Release dated August 7, 2020
99.66*   News Release dated August 10, 2020
99.67*   Arrangement Agreement dated August 20, 2020
99.68*   Support and Voting Agreement dated August 20, 2020
99.69*   News Release dated August 21, 2020
99.70*   Material Change Report dated August 28, 2020
99.71*   Amended and Restated Asset Purchase Agreement dated September 1, 2020
99.72*   News Release dated September 1, 2020
99.73*   News Release dated September 1, 2020
99.74*   News Release dated September 8, 2020
99.75*   News Release dated September 14, 2020
99.76*   52-109FV2 – Certification of Interim filings – CFO (E) dated September 16, 2020
99.77*   52-109FV2 – Certification of Interim filings – CEO (E) dated September 16, 2020
99.78*   News Release dated September 16, 2020
99.79*   News Release dated September 16, 2020
99.80*   News Release dated September 22, 2020
99.81*   Management Information Circular dated September 23, 2020
99.82*   Report of exempt distribution excluding Schedule 1 of 45-106F1 (amended) dated October 19, 2020
99.83*   News Release dated October 28, 2020
99.84*   News Release dated November 3, 2020
99.85*   First Supplemental Warrant Indenture dated November 16, 2020
99.86*   First Supplemental Debenture Indenture dated November 16, 2020
99.87*   News Release dated November 17, 2020
99.88*   News Release dated November 17, 2020
99.89*   Support and Voting Agreement dated November 18, 2020
99.90*   Articles of Arrangement dated November 18, 2020
99.91*   News Release dated November 23, 2020
99.92*   News Release dated November 25, 2020
99.93*   Material Change Report dated November 25, 2020
99.94*   News Release dated November 30, 2020
99.95*   News Release dated December 3, 2020
99.96*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated December 4, 2020
99.97*   News Release dated December 8, 2020
99.98*   News Release dated December 9, 2020
99.99*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated December 10, 2020
99.100*   News Release dated December 14, 2020

 

7

 

 

99.101*   News Release dated December 29, 2020
99.102*   News Release dated January 4, 2021
99.103*   News Release dated January 7, 2021
99.104*   NI 44-101 Notice of Intent to Qualify dated January 6, 2021
99.105*   News Release dated January 10, 2021
99.106*   Report of exempt distribution excluding Schedule 1 of 45-106F1 dated January 13, 2021
99.107*   Business Acquisition Report dated January 15, 2021
99.108*   News Release dated January 22, 2021
99.109*   News Release dated January 25, 2021
99.110*   News Release dated February 1, 2021
99.111*   News Release dated February 1, 2021
99.112*   News Release dated February 2, 2021
99.113*   Amended and Restated Bought Deal Offering of Units dated February 2, 2021
99.114*   Cover Letter from Newsfile Corp. dated February 2, 2021
99.115*   Letter from Foreign Issuer dated February 2, 2021
99.116*   Term Sheet dated February 1, 2021
99.117*   Amended and Restated Term Sheet dated February 2, 2021
99.118*   Qualification Certificate dated February 5, 2021
99.119*   Preliminary Short Form Prospectus dated February 5, 2021
99.120*   Decision Document dated February 5, 2021
99.121*   Marketing materials dated February 9, 2021
99.122*   Other material contract(s) dated February 9, 2021
99.123*   News Release dated February 10, 2021
99.124*   News Release dated February 16, 2021
99.125*   Undertaking to file documents and material contracts dated February 16, 2021
99.126*   Government of Alberta Certificate of Amendment and Registration of Restated Articles
99.127*   Consent letter of underwriters' legal counsel dated February 16, 2021
99.128*   Consent letter of issuer's legal counsel
99.129*   Auditors' consent letter dated February 16, 2021
99.130*   Auditors' consent letter dated February 16, 2021
99.131*   Underwriting or agency agreement dated February 16, 2021
99.132*   Final short form prospectus dated February 16, 2021
99.133*   Decision Document dated February 17, 2021
99.134*   News Release dated February 18, 2021
99.135*   News Release dated February 22, 2021
99.136*   2021 Warrant Indenture dated February 22, 2021
99.137*   News Release dated February 23, 2021
99.138*   ON Form 13-502F1 (Class 1 and 3B Reporting Issuers – Participation Fee) dated March 1, 2021
99.139*   Consolidated financial statements for the years ended October 31, 2020 and 2019
99.140*   AB Form 13-501F1 (Class 1 and 3B Reporting Issuers – Participation Fee) dated March 1, 2021
99.141*   MD&A for the year ended October 31, 2020
99.142*   52-109FV1 – Certification of annual filings – CFO (E) dated March 1, 2021
99.143*   52-109FV1 – Certification of annual filings – CEO (E) dated March 1, 2021
99.144*   News Release dated March 1, 2021
99.145*   News Release dated March 4, 2021
99.146*   News Release dated March 5, 2021
99.147*   News Release dated March 8, 2021
99.148*   News Release dated March 10, 2021
99.149*   Annual Information Form dated March 5, 2021
99.150*   52-109F1 – AIF – Certification of filings with voluntarily filed AIF – CFO (E) dated March 11, 2021
99.151*   52-109F1 – AIF – Certification of filings with voluntarily filed AIF – CEO (E) dated March 11, 2021
99.152*   News Release dated March 15, 2021
99.153*   Consent of Independent Registered Public Accounting Firm dated March 19, 2021 from MNP LLP
99.154*   Consent of Independent Registered Public Accounting Firm dated March 19, 2021 from Ernst & Young LLP
99.155   News Release dated March 19, 2021
99.156   News Release dated March 22, 2021
99.157   News Release dated March 24, 2021
99.158   Agreement and Plan of Merger By and Among High Tide Inc. and Smoke Cartel
99.159   News Release dated March 25, 2021
99.160   News Release dated March 26, 2021
99.161   News Release dated March 30, 2021
99.162   Condensed Interim Consolidated Financial Statements for the three months ended January 31, 2021 and 2020
99.163   MD&A for the three months ended January 31, 2021 and 2020
99.164   52-109FV2 - Certification of Interim Filings - CFO (E)
99.165   52-109FV2 - Certification of Interim Filings - CEO (E)
99.166   News Release dated March 31, 2021

 

* Previously Filed.

 

 

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EXHIBIT 99.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Financial Statements

 

For the years ended October 31, 2019 and 2018

(Stated In thousands of Canadian dollars, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Independent Auditor’s Report

 

To the Shareholders of High Tide Inc.:

 

Opinion

 

We have audited the consolidated financial statements of High Tide Inc. and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at October 31, 2019 and October 31, 2018, and the consolidated statements of loss and other comprehensive loss, changes in shareholders’ equity (deficiency) and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at October 31, 2019 and October 31, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

 

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Other Information

 

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

 

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

 

 

 

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for oneresulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

The engagement partner on the audit resulting in this independent auditor’s report is Stephen Bonnell.

 

Calgary, Alberta

 

February 28, 2020

Chartered Professional Accountants

 

 

 

 

High Tide Inc.

Consolidated Statements of Financial Position

As at October 31, 2019 and 2018

(Stated – In thousands of Canadian dollars)

 

    Notes   2019     2018  
        $     $  
Assets                
Current assets                
Cash and cash equivalents         806       8,198  
Restricted marketable securities         50       -  
Accounts receivable   22     2,385       855  
Inventory   9     6,719       3,463  
Prepaid expenses, deposits and other receivables   8     2,518       4,931  
Current portion of loans receivable   10     261       62  
Total current assets         12,739       17,509  
                     
Non-current assets                    
Loans receivable   10     878       -  
Property and equipment   6     12,382       3,598  
Long term prepaid expenses, deposits and other receivables   8     1,380       1,200  
Long term accounts receivable         -       706  
Deferred tax asset   16     1,190       1,975  
Intangible assets and goodwill   7     12,174       934  
Total non-current assets         28,004       8,413  
Total assets         40,743       25,922  
                     
Liabilities                    
Current liabilities                    
Accounts payable and accrued liabilities   22     4,402       2,515  
Notes payable current   13     3,570       -  
Income taxes payable         -       33  
Current portion of finance lease obligation   12     6       6  
Shareholder loans   26     701       36  
Derivative liability   11     2,121       -  
Total current liabilities         10,800       2,590  
                     
Non-current liabilities                    
Notes payable   13     62       -  
Convertible debentures   15     19,664       -  
Long term contract liability         89       -  
Finance lease obligations   12     11       17  
Deferred tax liability   16     710       -  
Total non-current liabilities         20,536       17  
Total liabilities         31,336       2,607  
                     
Shareholders’ equity                    
Share capital   17     26,283       35,695  
Contributed surplus   18     2,119       -  
Convertible debentures – equity         1,637       -  
Warrants   20     6,609       905  
Special warrants   19     -       16,904  
Accumulated other comprehensive income         (366 )     -  
Accumulated deficit         (26,696 )     (30,176 )
Equity attributable to owners of the Company         9,586       23,328  
Non-controlling interest   26     (179 )     (13 )
Total shareholders’ equity         9,407       23,315  
Total liabilities and shareholders’ equity         40,743       25,922  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

(Signed) “Harkirat (Raj) Grover”   (Signed) “Nitin Kaushal”
President and Chairman of the Board   Director and Chairman of the Audit Committee

 

2

 

 

High Tide Inc.

Consolidated Statements of Loss and Other Comprehensive Loss

For the year ended October 31, 2019 and 2018

(Stated – In thousands of Canadian dollars)

 

    Notes   2019     2018  
        $     $  
Revenue                
Merchandise sales         29,445       7,676  
Royalty revenue         1,516       835  
Interest and other revenue         333       238  
Net revenue   5     31,294       8,749  
                     
Cost of sales         (19,978 )     (5,639 )
                     
Gross profit         11,316       3,110  
                     
Expenses                    
Salaries, wages and benefits         (10,447 )     (2,938 )
Share-based compensation   18, 24     (2,209 )     -  
General and administration         (8,094 )     (2,012 )
Professional fees         (6,463 )     (970 )
Advertising and promotion         (2,252 )     (698 )
Depreciation and amortization   6, 7     (1,401 )     (86 )
Interest and bank charges         (324 )     (140 )
Total expenses         (31,190 )     (6,844 )
Loss from operations         (19,874 )     (3,734 )
                     
Other income (expenses)                    
Fair value change in conversion feature and warrants liability         -       28  
Revaluation of derivative liability   11     732       -  
Impairment loss   6, 7     (4,820 )     -  
Reclassification of available for sale reserve upon settlement of marketable securities         -       29  
Related party balances written off   24     (34 )     (1,419 )
Discount on accounts receivable         -       (475 )
Finance and other costs   14     (3,089 )     (499 )
Foreign exchange gain (loss)         (44 )     42  
Gain on extinguishment of financial liability   17(x), 24     129       -  
Total other income (expenses)         (7,126 )     (2,294 )
Loss before taxes         (27,000 )     (6,029 )
Deferred tax recovery   16     708       1,496  
Net Loss         (26,292 )     (4,533 )
Other comprehensive loss                    
Translation difference on re-valuation of foreign subsidary         (366 )     -  
Unrealized loss on available for sale marketable securities         -       (22 )
Reclassification of available for sale reserve upon settlement of marketable securities         -       (29 )
Total comprehensive loss         (26,658 )     (4,584 )
Net loss and comprehensive loss attributable to:                    
Owners of the Company         (26,492 )     (4,571 )
Non-controlling interest   26     (166 )     (13 )
          (26,658 )     (4,584 )
Loss per share                    
Basic   21     (0.13 )     (0.04 )
Diluted   21     (0.13 )     (0.04 )

 

The accompanying notes are an integral part of the consolidated financial statements.

 

Commitments and Contingencies (Note 25)

Subsequent Events (Note 27)

 

3

 

 

High Tide Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

(Stated– In thousands of Canadian dollars)

 

    Note   Share
capital
    Special
warrants
    Warrants    

Contributed

surplus

    Equity
portion of
convertible
debt
   

Accumulated
other
comprehensive income (loss)

   

Accumulated
deficit

   

Attributable
to owners

of the
Company

    NCI     Total  
          $       $       $       $       $       $       $       $       $       $  
Balance, October 31, 2017         667       -       -       -       -       51       (10,375 )     (9,657 )     -       (9,657 )
Shares issued for cash   17(i)     445       -       -       -       -       -       -       445       -       445  
Shares issued on debt conversion   17(ii)     852       -       -       -       -       -       -       852       -       852  
Shares issued for services rendered   17(iii)     146       -       -       -       -       -       -       146       -       146  
Shares issued - convertible debentures   20(i)     669       -       -       -       -       -       -       669       -       669  
Shares and warrants issued on reorganization   17(v)     31,987       -       241       -       -       -       (10,789 )     21,439       -       21,439  
Eliminated on corporate reorganization   17(v)     (2,779 )     -       -       -       -       -       -       (2,779 )     -       (2,779 )
Dividends on corporate reorganization         -       -       -       -       -       -       (4,492 )     (4,492 )     -       (4,492 )
Shares issued on High Tide incorporation   17(iv)     20       -       -       -       -       -       -       20       -       20  
Private placement   17(vi)     3,705       -       -       -       -       -       -       3,705       -       3,705  
Share issue costs – cash   17(vii)     (263 )     -       -       -       -       -       -       (263 )     -       (263 )
Broker warrants   17(vi)     (158 )     -       158       -       -       -       -       -       -       -  
Unrealized (loss) gain on marketable securities         -       -       -       -       -       (22 )     22       -       -       -  
Marketable securities upon settlement         -       -       -       -       -       (29 )     29       -       -       -  
Intangible assets acquisition   17(vii)     290       -       -       -       -       -       -       290       -       290  
Special warrants   19     -       18,364       -       -       -       -       -       18,364       -       18,364  
Warrant issue costs         -       (2,000 )     506       -       -       -       -       (1,494 )     -       (1,494 )
Tax effect of share issue costs         114       540       -       -       -       -       -       654       -       654  
Net loss         -       -       -       -       -       -       (4,571 )     (4,571 )     (13 )     (4,584 )
Balance, October 31, 2018         35,695       16,904       905       -       -       -       (30,176 )     23,328       (13 )     23,315  
Transition adjustment – IFRS 9   3d     -       -       -       -       -       -       (26 )     (26 )     -       (26 )
Transition adjustment – IFRS 15   3d     -       -       -       -       -       -       (67 )     (67 )     -       (67 )
Conversion of special warrants   19     13,051       (16,904 )     3,853       -       -       -       -       -       -       -  
Warrants issued December, 2018   15(i)     -       -       93       -       -       -       -       93       -       93  
Acquisition - Grasscity   4a     3,047       -       -       -       -       -       -       3,047       -       3,047  
Share-based compensation   18, 24     71       -       -       2,119       -       -       -       2,190       -       2,190  
Equity portion of convertible debentures   15     -       -       -       -       1,637       -       -       1,637       -       1,637  
Cumulative translation adjustment         -       -       -       -       -       (366 )             (366 )     -       (366 )
Interest payment paid in shares   15     1,156       -       -       -       -       -       -       1,156       -       1,156  
Warrants issued April, 2019   15(ii)     -       -       883       -       -       -       -       883       -       883  
Acquisition - Dreamweavers   4b     1,147       -       295       -       -       -       -       1,442       -       1,442  
Acquisition - Jasper Ave.   4d     205       -       -       -       -       -       -       205               205  
Warrants issued June, 2019   15(iii)     -       -       342       -       -       -       -       342       -       342  
Reduction is share capital   17(ix)     (29,699 )     -       -       -       -       -       29,699       -       -       -  
Fee paid in shares & warrants   17(x), 20(ii)     1,607       -       132       -       -       -       -       1,739       -       1,739  
Warrants issued September, 2019   13     -       -       105       -       -       -       -       105       -       105  
Warrant exercise         3       -       -       -       -       -       -       3       -       3  
Comprehensive loss for the year         -       -       -       -       -       -       (26,126 )     (26,126 )     (166 )     (26,292 )
Balance, October 31, 2019       26,283       -       6,609       2,119       1,637       (366 )     (26,696 )     9,586       (179 )     9,407  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4

 

 

High Tide Inc.

Consolidated Statements of Cash Flows

For the year ended October 31, 2019 and 2018

(Stated – In thousands of Canadian dollars)

 

    Notes   2019     2018  
        $     $  
                 
Operating activities                
Net loss         (26,292 )     (4,533 )
Income tax recovery   16     (708 )     (1,495 )
Accretion   14     1,476       8  
Depreciation and amortization   6,7     1,401       86  
Impairment loss on goodwill   7     4,600       -  
Impairment loss on fixed assets   6     220          
Revaluation of derivative liability   11     (732 )     (28 )
Gain on financial liability         -       -  
Share-based compensation   18, 24     2,209       146  
Inventory Obsolesence         -       182  
Related party balances written-off         -       1,419  
Provision for impairment on accounts receivable         -       19  
Expected credit loss allowance   22     1,142       475  
          (16,684 )     (3,721 )
Changes in non-cash working capital                    
Accounts receivable         (1,920 )     (673 )
Inventory         (1,811 )     (102 )
Loans receivable   10     (1,077 )     313  
Prepaid expenses and deposits         3,536       (5,898 )
Accounts payable and accrued liabilities         2,461       1,715  
Income tax payable         (33 )     -  
Contract liability         30       -  
Shareholder loans   26     665       (413 )
Net cash used in operating activities         (14,833 )     (8,779 )
                     
Investing activities                    
Purchase of property and equipment   6     (8,074 )     (3,581 )
Purchase of intangible assets   7     (2,333 )     (646 )
Loans receivable         -       -  
Cash paid for business combination, net of cash acquired   4     (6,515 )     -  
Net cash used in investing activities         (16,922 )     (4,227 )
                     
Financing activities                    
Repayment of finance lease obligations         (6 )     (31 )
Proceeds from convertible debentures net of issue costs   15     22,419       566  
Notes Payable   13     2,000       -  
Net proceeds from share issuance         -       3,887  
Net proceeds special warrant issuance         -       16,870  
Restricted marketable securities         (50 )     -  
Payment of dividends         -       (1,155 )
Net cash provided by financing activities         24,363       20,137  
                     
Net (decrease) increase in cash and cash equivalents         (7,392 )     7,131  
Cash and cash equivalents, beginning of the year         8,198       1,067  
Cash and cash equivalents, end of the year         806       8,198  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

1. Nature of Operations

 

High Tide Inc. (the “Company” or “High Tide”) is a downstream focused retailer of cannabis products, distributor, and a seller of smoking accessories. The Company’s shares are listed on the Canadian Stock Exchange (“CSE”) under the symbol “HITI”, the Frankfurt Stock Exchange (“FSE”) under the securities identification code ‘WKN: A2PBPS’ and the ticker symbol “2LY”, and on the OTCQB Market (“OTCQB”) under the symbol “HITIF”. The address of the Company’s corporate and registered office is # 120 – 4954 Richard Road SW, Calgary, Alberta T3E 6L1.

 

High Tide does not engage in any U.S. cannabis-related activities as defined by the Canadian Securities Administrators Staff Notice 51-352.

 

2. Basis of Preparation

 

2.1 Statement of Compliance

 

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee (“IFRIC”). These consolidated financial Statements were approved and authorized for issue by the Board of Directors on February 28, 2020.

 

2.1 Basis of measurement

 

The consolidated financial statements, presented in thousands of Canadian Dollars, have been prepared on a historical cost basis, except for stock options, warrants and certain financial instruments which are measured at fair value. The accounting policies set out below have been applied consistently by the Company and its wholly owned subsidiaries for the periods presented. For comparative purposes, the Company has reclassified certain immaterial items on the comparative consolidated statement of financial position and the consolidated statements of loss and other comprehensive loss to conform with current period’s presentation.

 

2.2 Functional and presentation currency

 

The consolidated financial statements are presented in Canadian dollars, which is the Company’s presentation currency.

 

The functional currency of the Company’s Canadian subsidiaries is the Canadian dollar (“CAD”), and of the Company’s United States (“U.S.”) subsidiaries is the USD, and of the Company’s European subsidiaries is the Euro (“EUR”). Translation gains and losses resulting from the consolidation of operations in Canada, USA and Europe, are recognized in other comprehensive income in the statement of loss and other comprehensive loss and as a separate component of shareholders’ equity on the consolidated statement of changes in equity.

 

2.3 Basis of consolidation

 

Subsidiaries

 

Subsidiaries   Percentage Ownership   Functional Currency
Canna Cabana Inc.   100.00%   Canadian Dollar
RGR Canada Inc.   100.00%   Canadian Dollar
Famous Brandz Inc.   100.00%   Canadian Dollar
Canna Cabana (SK) Inc.   100.00%   Canadian Dollar
Smoker’s Corner Ltd.   100.00%   Canadian Dollar
KushBar Inc.   50.10%   Canadian Dollar
Kush West Distribution Inc.   100.00%   Canadian Dollar
HT Global Imports Inc.   100.00%   Canadian Dollar
High Tide BV (Grasscity)   100.00%   European Euro
Valiant Distrbutions Inc.   100.00%   U.S. Dollar

 

Subsidiaries are entities controlled by High Tide. Control is achieved where the entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statements of loss and other comprehensive loss from the effective date of acquisition and up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the consolidated financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Company. Intra-group balances and transactions, and any unrealized gains or losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

 

6

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

3. Accounting Policies

 

The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by the Company and its subsidiaries.

 

Use of estimates & accounting judgements

 

The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and shareholders’ equity at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

 

The estimates and assumptions are reviewed on an ongoing basis. Revisions in accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

 

A. Use of estimates

 

Critical accounting estimates are those that require management to make assumptions about matters that are highly uncertain at the time the estimate or assumption is made. Critical accounting estimates are also those that could potentially have a material impact on the Company’s financial results where a different estimate or assumption is used. The significant areas of estimation uncertainty are:

 

Expected credit losses

 

The Company’s accounts receivables are typically short-term in nature and the Company recognizes an amount equal to the lifetime expected credit losses (“ECL”). The Company measures lifetime ECLs based on historical experience and including forecasted economic conditions. The amount of ECLs is sensitive to changes in circumstances of forecast economic conditions.

 

Inventory valuation

 

Inventory is carried at the lower of cost and net realizable value; in estimating net realizable value, the Company makes estimates related to obsolescence, future selling prices, seasonality, customer behaviour, and fluctuations in inventory levels.

 

Estimated useful lives, residual values and depreciation of property and equipment

 

Depreciation of property and equipment is dependent upon estimates of useful lives and residual values, which are determined through the exercise of judgement.

 

Estimated useful lives of Intangibles

 

Amortization of intangible assets is dependent upon estimates of useful lives, lease terms and residual values which are determined through the exercise of judgement.

 

Fair value of financial instruments

 

The individual fair values attributed to different components of a financing transaction are determined using valuation techniques. The Company uses judgement to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine; (a) the values attributable to each component of a transaction at the time of their issuance; (b) the fair value measurement for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgement and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.

 

Impairment of non-financial assets

 

Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use (“VIU”). The fair value less costs of disposal calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The estimated future cash flows are derived from management estimates, budgets and past performance and do not include activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash flows and the growth rate used for extrapolation purposes.

 

7

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

A. Use of estimates (continued)

 

Business combinations

 

In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management develop the fair value, using approximate valuation techniques, which are generally based on a forecast of the total expected future cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and the discount rate applied. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. When provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for up to one year from the acquisition date.

 

Taxation

 

The calculations for current and deferred taxes require management’s interpretation of tax regulations and legislation in the various tax jurisdictions in which the Company operates, which are subject to change. The measurement of deferred tax assets and liabilities requires estimates of the timing of the reversal of temporary differences identified and management’s assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire, which involves estimating future taxable income.

 

The Company is subject to assessments by various taxation authorities in the tax jurisdictions in which it operates, and these taxation authorities may interpret the tax legislation and regulations differently. In addition, the calculation of income taxes involves many complex factors. As such, income taxes are subject to measurement uncertainty and actual amounts of taxes may vary from the estimates made by management.

 

Deferred tax assets

 

Deferred tax assets, including those arising from tax loss carry-forwards, require management to assess the likelihood that the Company will generate sufficient taxable income in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted.

 

Measurement of share-based payments, warrants and stock options

 

In calculating the value of share-based payments, warrants and stock options, key estimates such as the value of the common shares, the rate of forfeiture, the expected life, the volatility of the value of the Company’s common shares and the risk-free interest rate are used.

 

B. Judgements

 

Judgement is used in situations when there is a choice and/or assessment required by management. The following are critical judgements apart from those involving estimations, that management has made in the process of applying the Company’s accounting policies and that have a significant effect on the amounts recognized in the consolidated financial statements.

 

Going concern

 

Determining if the Company has the ability to continue as a going concern is dependent on its ability to achieve to raise additional financing and/achieve profitable operations. Certain judgements are made when determining if the Company will achieve profitable operations. At each reporting period, management assesses the basis of preparation of the consolidated financial statements. The assumption that the Company will be able to continue as a going concern is subject to critical judgements of management with respect to assumptions surrounding the short and long-term operating budget, expected profitability, investment and financing activities and management’s strategic planning.

 

Determination of CGUs

 

For the purposes of assessing impairment of non-financial assets, the Company must determine CGUs. Assets are allocated to CGUs based on the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Determination of what constitutes a CGU is subject to management judgement. The asset composition of a CGU can directly impact the recoverability of assets included within the CGU. The determination of the Company’s CGUs was based on management’s judgement in regard to shared infrastructure, geographical proximity and similar exposure to market risk and materiality.

 

8

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

B. Judgements (continued)

 

Business combinations and asset acquisitions

 

Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgement. Where an acquisition is classified as a business combination or an asset acquisition can have a significant impact on the entries made on and after the acquisition. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using approximate valuation techniques, which are generally based on a forecast of the total expected future cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process.

 

Consolidation

 

The determination of which entities require consolidation is subject to management judgement regarding levels of control, assumptions of risk and other factors that may ultimately include or exclude an entity from the classification of a subsidiary or other entity requiring consolidation.

 

Segmented information

 

Operating segments are determined based on internal reports used in making strategic decisions that are reviewed by the Chief Operating Decision Makers (CODMs). The Company’s CODMs are the Chief Financial Officer, Chief Executive Officer and Chief Operating Officer.

 

Contingencies

 

Management uses judgement to assess the existence of contingencies. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. Management also uses judgement to assess the likelihood of the occurrence of one or more future events.

 

Derivative liability

 

Management applies judgement in determining the fair value of the derivative liability of its put option on Grasscity acqusition by applying assumptions and estimates using the Black-Scholes valuation model. These assumptions and estimates require a high degree of judgement and a change in these estimates may result in a material effect to the consolidated financial results.

 

C. Summary of significant accounting policies

 

Cash and cash equivalents

 

Cash and cash equivalents consist of bank balances and highly liquid short-term investments with a maturity date of 90 days or less which are convertible to known amounts of cash at any time by the Company without penalties.

 

Marketable securities

 

Marketable securities comprise of the Company’s investments in money market mutual funds held through a large commercial bank in Canada and are disclosed as restricted marketable securities. Such securities are measured at fair market value in the consolidated financial statements with unrealized gains or losses recorded in other comprehensive income. Fair values for marketable securities are estimated using quoted market prices in active markets, obtained from securities exchanges. At the time securities are sold or otherwise disposed of, gains or losses are included in consolidated statement of loss and other comprehensive loss.

 

Inventory

 

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is calculated on a weighted average cost basis and includes expenditures incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition.

 

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The Company reviews inventory for obsolete, redundant and slow-moving goods and any such inventory are written down to net realizable value. Any write-downs of inventory to net realizable value are recorded in consolidated statement of loss and other comprehensive loss of the related year.

 

9

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

C. Summary of significant accounting policies (continued)

 

Property and equipment

 

Property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. During the construction of leasehold improvements, items are classified as construction in progress. When the asset is available for use, it is transferred from construction in progress to the appropriate category of property and equipment and depreciation on the item commences.

 

Depreciation is provided using the following methods at rates intended to depreciate the costs of the assets over their estimated use lives:

 

Asset   Method   Useful life
Office equipment and computers   Straight-line   3 to 5 years
Leasehold improvements   Straight-line   Term of lease
Vehicles   Straight-line   5 years
Buildings   Straight-line   25 years

 

When a property and equipment asset includes significant components with different useful lives, each significant component is depreciated separately.

 

The estimated useful lives and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

 

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in consolidated statement of loss and other comprehensive loss of the related year.

 

Assets under construction are not ready for use and are not depreciated.

 

Repairs and maintenance costs that do not improve or extend productive life are recognized in the consolidated statement of loss and other comprehensive loss in the year in which the costs are incurred.

 

Intangible assets

 

Intangible assets acquired separately are measured initially at cost and consists of software and lease buy-outs. Following initial recognition, intangible assets are recorded at cost less accumulated amortization and impairment losses, if any. The cost of intangible assets acquired in an asset acquisition are initially measured using an allocation of the purchase consideration using a relative fair value approach.

 

The useful lives of intangible assets are assessed as either finite or indefinite. The Company does not have any indefinite life intangible assets. Amortization of finite life intangible assets is provided, when the intangible asset is available for use, on a straight-line basis over their estimated useful lives, which for leases is the lower of the useful life of the asset, or the primary lease term, including renewals at the Company’s option, if any, as follows:

 

Intangible asset   Method   Useful life
Software   Straight-line   5 years
Lease buy-outs   Straight-line   Remaining term of the lease
Licenses   Straight-line   Remaining term of the lease
Brand names   -   Indefinite life

 

The estimated useful lives and amortization methods are reviewed at each year-end, and any changes in estimates are accounted for prospectively. Intangible assets not yet available for use are not subject to amortization.

 

Goodwill

 

Goodwill arises on business combinations and is tested for impairment annually or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. Goodwill is initially recognized as the excess of the purchase price over the fair value of the net assets acquired in a business combination. Subsequently, goodwill is measured at cost less accumulated impairment losses.

 

10

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

C. Summary of significant accounting policies (continued)

 

Provisions

 

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

 

Foreign currencies

 

The Company’s functional currency is the Canadian dollar. Transactions undertaken in foreign currencies are translated into Canadian dollars at daily exchange rates prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies are translated at period-end exchange rates and non-monetary items are translated at historical exchange rates. Realized and unrealized exchange gains or losses are recognized in consolidated statement of loss and other comprehensive loss in the period in which they arise.

 

The assets and liabilities of foreign operations are translated into Canadian dollars using the period-end exchange rates. Income, expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from the translation of foreign operations into Canadian dollars are recognized in other comprehensive (loss) income and accumulated in equity.

 

Revenue recognition

 

The Company has adopted IFRS 15 on November 1, 2018. Revenue recognition is based on a 5-step approach which includes identifying the contract with the customer, identifying the performance obligations, determining the individual transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when the relevant performance obligations are satisfied. Revenue is recognized when the entity satisfies the performance obligation upon delivery and acceptance by the customer. Revenue in the consolidated financial statements is disaggregated into retail, wholesale and royalty revenue.

 

Recognition

 

The nature, timing of recognition of satisfied performance obligations, and payment terms for the Company’s goods and services are described below:

 

For performance obligations related to retail and wholesale contracts, the Company typically transfers control, completes the performance obligation, and recognizes revenue at the point in time when delivery of the items to the customer occurs, with the exception of bill and hold arrangements as noted below. Upon delivery the customer can obtain substantially all of the benefits from the items purchased.

 

For performance obligations related to franchise contracts, the Company typically satisfies its performance obligations at a point in time, or over time as services are rendered, depending on the obligation and the specifics of the contract.

 

The Company recognizes a contract asset or contract liability for contracts where only one party has satisfied its performance obligations. A contract liability is recorded when the Company receives consideration before the performance obligations have been satisfied. A contract asset is recorded when the Company has rights to consideration for the completion of a performance obligation before it has invoiced the customer. The Company recognizes unconditional rights to consideration separately as a receivable. Contract assets and receivables are evaluated at each reporting period to determine whether there is any objective evidence that they are impaired.

 

11

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

C. Summary of significant accounting policies (continued)

 

Revenue recognition (continued)

 

The Company recognizes a significant financing component where the timing of payment from the customer differs from the Company’s performance under the contract and where that difference is the result of the Company financing the transfer of goods and services. For the majority of the contracts, revenue excludes the impact of a significant financing component since, the Company expects at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

 

Identification of performance obligations

 

Where contracts contain multiple promises for goods or services, management exercises judgement in determining whether goods or services constitute distinct goods or services or a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. The determination of a performance obligation affects whether the transaction price is recognized at a point in time or over time. Management considers both the mechanics of the contract and the economic and operating environment of the contract in determining whether the goods or services in a contract are distinct.

 

Transaction price

 

In determining the transaction price and estimates of variable consideration, management considers the history of the customer in estimating the goods and services to be provided to the customer as well as other variability in the contract.

 

Allocation of transaction price to performance obligations

 

The Company’s contracts generally outline a specific amount to be invoiced to a customer associated with each performance obligation in the contract. Where contracts do not specify amounts for individual performance obligations, the Company estimates the amount of the transaction price to allocate to individual performance obligations based on their standalone selling price, which is primarily estimated based on the amounts that would be charged to customers under similar market conditions.

 

Satisfaction of performance obligations

 

The satisfaction of performance obligations requires management to make judgement as to when control of the underlying good or service transfers to the customer. Determining when a performance obligation is satisfied affects the timing of revenue recognition. Management considers both customer acceptance of the good or service, and the impact of laws and regulations such as standard shipping practices, in determining when this transfer occurs.

 

Wholesale revenue

 

Revenue from sales to customers through the Company’s wholesale distribution arm are recognized when control of the goods has transferred to the customer. Where the Company arranges the shipping of goods, revenue is recognized on the date of delivery of goods to the customer’s location (FOB destination). Where the customer arranges for the pickup of goods, revenue is recognized at the time the goods are transferred to the customers carrier (FOB shipping point). Costs to ship orders to customers are included as an expense in cost of goods sold.

 

Retail revenue

 

Revenue consists of sales through the Company’s network of retail stores and includes sales through the Company’s ecommerce platform. Merchandise sales through retail stores are recognized at the time of delivery to the customer which is generally at the point of sale. Merchandise sales through the Company’s e-commerce operations are recognized upon date of receipt by the customer.

 

Royalty revenue

 

The Company earns fixed and variable royalty income from its franchisees. The fixed royalty income is earned based on an agreed fixed amount per month whereas the variable royalty income is calculated at an agreed rate on the revenue earned by franchisees. Royalty revenue is recognized in consolidated statement of loss and other comprehensive loss when earned.

 

Sales returns

 

The Company does allow returns. Defective products or products that get damaged upon shipping by the Company are considered for exchanges. Due to negligble amount of returns the Company does not record any provision for returns.

 

12

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

C. Summary of significant accounting policies (continued)

 

Taxes

 

Tax expense is comprised of current and deferred tax. Tax is recognized in the consolidated statement of loss and other comprehensive loss except to the extent that it relates to items recognized in other comprehensive income (loss) or equity on the statement of financial position.

 

Current tax

 

Current tax is calculated using tax rates which are enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to taxation authorities.

 

Deferred tax

 

Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates which are enacted or substantively enacted at the end of the reporting period and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

 

Deferred tax liabilities are generally recognized for all taxable temporary differences, except for temporary differences that arise from goodwill, which is not deductible for tax purposes. Deferred tax liabilities are also recognized for taxable temporary differences arising on investments in subsidiaries except where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future.

 

Deferred tax assets are recognized to the extent it is probable that taxable profits will be available against which the deductible balances can be utilized. All deferred tax assets are analyzed at each reporting period and reduced to the extent that it is no longer probable that the asset will be recovered. Deferred tax assets and liabilities are not recognized with respect to temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination.

 

Share-based payments

 

The fair value of stock options issued to directors, officers and consultants under the Company’s stock option plan is estimated at the date of issue using the Black-Scholes option pricing model, and charged to consolidated statement of loss and other comprehensive loss and contributed surplus over their relevant vesting period. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. On the exercise of options, the cash consideration received and the fair value of the option previously credited to contributed surplus are credited to share capital.

 

The fair value of options issued to advisors in conjunction with financing transactions is estimated at the date of issue using the fair value of the goods and services received first, if determinable, then by the Black-Scholes option pricing model, and charged to share capital and contributed surplus over the vesting period. On the exercise of agent options, the cash consideration received and the fair value of the option previously credited to contributed surplus are credited to share capital.

 

Where stock options are cancelled, it is treated as if the stock options had vested on the date of cancellation and any expense not yet recognized for the award is recognized immediately. However, if a new option is substituted for the cancelled option and is designated as a replacement option on the date that it is granted, the cancelled and the new options are treated as if they were a modification of the original option.

 

Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s share purchase options. Forfeitures are estimated for each reporting period and adjusted as required to reflect actual forfeitures that have occurred in the period.

 

Earnings (loss) per share

 

Basic earnings (loss) per share is calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number of common shares outstanding during the year.

 

Diluted earninsgs (loss) per share is calculated by dividing the losses of the Company by the weighted average number of common shares outstanding, adjusted for the effects of all dilutive potential common shares. The weighted average number of common shares outstanding is increased by the total number of additional common shares that would have been issued by the Company assuming exercise of all convertible equity instruments with exercise prices below the average market price for the year.

 

13

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

C. Summary of significant accounting policies (continued)

 

Segment reporting

 

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The operating results of all operating segments for which discrete financial information is available are reviewed regularly by executive management to make decisions about resources to be allocated to the segments and assess their performance. Segment results that are important to executive management generally include items directly attributable to a segment.

 

Leases

 

Payments made under operating leases are recognized in the consolidated statement of loss and other comprehensive loss on a straight-line basis over the term of the lease. Lease incentives/inducements received are deferred and amortized over the primary term of the lease, or the contractual term if the lease provides for renewals at the option of the Company which management intends to utilize. Operating lease payments are recognized as an operating expense in the consolidated financial statements of loss and comprehensive loss on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which the economic benefits are consumed.

 

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

 

Impairment of non-financial assets

 

At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite life intangible assets are tested annually for impairment by comparing the carrying value of each CGU to which goodwill has been allocated to its recoverable amount.

 

For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs.

 

The recoverable amount of an asset or CGU is the greater of its value in use and its fair-value less costs of disposal. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. The fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset.

 

An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.

 

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

Asset acquisitions

 

Acquisitions that do not meet the definition of a business combination are accounted for as an asset acquisition. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.

 

14

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

D. Current Accounting Policy Changes

 

IFRS 9 Financial Instruments:

 

Effective November 1, 2018, the Company adopted IFRS 9, which introduces new requirements for:

 

i) The classification and measurement of financial assets and liabilities,
ii) The recognition and measurement of impairment of financial assets, and
iii) General hedge accounting

 

In accordance with the transition provisions of the standard, the Company has elected to not restate prior periods. The impact of adopting IFRS 9 was recognized in Accumulated Deficit at November 1, 2018 and related to the recognition of additional expected credit losses. The net impact resulted in an increase in the expected credit losses allowance of $36, an increase in deferred income tax assets of $10, and a $26 increase in Accumulated Deficit.

 

The Company’s accounting policies under IFRS 9 are outlined below. For more information on the Company’s accounting policies under IAS 39, refer to Note 4 of the Company’s consolidated financial statements for the annual period ended October 31, 2018.

 

a. Classification and Measurement

 

IFRS 9 introduces the requirement to classify and measure financial assets based on their contractual cash flow characteristics and the Company’s business model for the financial asset. All financial assets and financial liabilities, including derivatives, are recognized at fair value on the consolidated statements of financial position when the Company becomes party to the contractual provisions of a financial instrument or non-financial derivative contract. Financial assets must be classified and measured at either amortized cost, at fair value through profit or loss (“FVTPL”), or at fair value through other comprehensive income (“FVTOCI”).

 

Financial assets with contractual cash flows arising on specified dates, consisting solely of principal and interest, and that are held within a business model whose objective is to collect the contractual cash flows are subsequently measured at amortized cost. Financial assets measured at FVTOCI are those which have contractual cash flows arising on specific dates, consisting solely of principal and interest, and that are held within a business model whose objective is to both to collect the contractual cash flows and to sell the financial asset. All other financial assets are subsequently measured at FVTPL.

 

Derivative instruments, when utilized, would initially be recognized at the fair value at the date the derivative contracts were entered into, and would be subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss would be recognized in net loss immediately, unless the derivative was designated and effective as a hedging instrument, in which case the timing of the recognition in net earnings would be dependent on the nature of the hedging relationship.

 

Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 (i.e. financial liabilities) are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts, and the host contracts are not measured at FVTPL. Derivatives embedded in hybrid financial asset host contracts that are within the scope of IFRS 9 are not separated and the entire contract is measured at either FVTPL or amortized cost, as appropriate. The Company’s management reviewed and assessed the classifications of its existing financial instruments as at November 1, 2018, based on the facts and circumstances that existed at that date, as shown below.

 

Financial Instrument   IFRS 9 Classification   IAS 39 Category
Cash and cash equivalents   Amortized cost   FVTPL
Loans receivable   Amortized cost   Loans and receivables
Marketable securities   FVTPL   Available for sale
Loans payable and other liability   Amortized cost   Other financial liabilities
Shareholder loans   Amortized cost   Other financial liabilities
Convertible debt   Amortized cost   Other financial liabilities
Accounts receivable   Amortized cost   Loans and receivables
Accounts payable and accrued liabilities   Amortized cost   Other financial liabilities
Notes payable   Amortized cost   Other financial liabilities
Derivative liability   FVTPL   FVTPL

 

15

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

D. Current Accounting Policy Changes (continued)

 

b. Impairment of Financial Assets

 

IFRS 9 introduces a new impairment model for financial assets measured at amortized cost as well as certain other instruments. The expected credit loss model requires entities to account for expected credit losses on financial assets at the date of initial recognition, and to account for changes in expected credit losses at each reporting date to reflect changes in credit risk. IFRS 9 introduces a new impairment model for financial assets measured at amortized cost as well as certain other instruments. The expected credit loss model requires entities to account for expected credit losses on financial assets at the date of initial recognition, and to account for changes in expected credit losses at each reporting date to reflect changes in credit risk.

 

The loss allowance for a financial asset is measured at an amount equal to the lifetime expected credit loss if its credit risk has increased significantly since initial recognition, or if the financial asset is a purchased or originated credit-impaired financial asset. If the credit risk on a financial asset has not increased significantly since initial recognition, its loss allowance is measured at an amount equal to the 12-month expected credit loss.

 

IFRS 9 states that an entity must measure trade receivables at their transaction price (as defined in IFRS 15 Revenue from Contracts with Customers) if the trade receivables do not contain a significant financing component (or when the entity applies the available practical expedient). This ’simplified approach’ permits the use of a provision matrix model for measuring the loss allowance for trade receivables, contract assets and lease receivables at an amount equal to lifetime expected credit losses under certain circumstances. The Company measures its trade receivables using the simplified approach. Expected credit losses measurement takes into consideration historical customer default rates, adjusted by forward-looking information including household consumption and consumer price indices, as well as real gross domestic product. The Company also contemplates the grouping of receivables into various customer segments that have similar loss patterns (e.g. by geography). The Company uses the general approach to measure the expected credit loss for certain loans receivable and lease receivables.

 

The Company’s management reviewed and assessed its existing financial assets for impairment using reasonable and supportable information in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognized and compared that to the credit risk as at November 1, 2018. There was an increase in credit risk determined upon application of IFRS 9 and therefore an additional loss allowance of $26 was recognized.

 

c. General Hedge Accounting

 

IFRS 9 retains the three types of hedges from IAS 39 (fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation) but increases flexibility as to the types of transactions that are eligible for hedge accounting. The effectiveness test of IAS 39 is replaced by the principle of an “economic relationship”, which requires that the hedging instrument and the hedged item have values that generally move in opposite directions because of the hedged risk. Additionally, retrospective hedge effectiveness testing is no longer required under IFRS 9. As the Company does not engage in hedge accounting, the application of IFRS 9 hedge accounting requirements has had no impact on the results and financial position of the Company.

 

IFRS 15 Revenue from Contracts with Customers

 

The Company has adopted IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) with an initial adoption date of November 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition, which is outlined below. The Company has elected to adopt IFRS 15 retrospectively with the modified retrospective method of transition practical expedient and has elected to apply IFRS 15 only to contracts that are not completed contracts at the date of initial application. Comparative information has not been restated and is reported under IAS 18 Revenue (“IAS 18”). For more information on the Company’s accounting policies under IAS 18, refer to Note 4 of the Company’s consolidated financial statements for the annual period ended October 31, 2018.

 

The Company recognized the cumulative impact of the initial application of the standard as a reclassification on the consolidated statement of financial position as well as an increase in Accumulated Deficit as at November 1, 2018. Applying the significant performance obligation requirements to specific contracts resulted in an increase in Accumulated Deficit of $67.

 

The impact to Accumulated Deficit related to franchise arrangements. IFRS 15 requires that, in determining the timing of revenue recognition, that if there is a reasonable expectation that the franchisor will undertake activities that will significantly affect the brand name to which the franchisee has rights, and the franchisee is directly exposed to any positive or negative effects of that brand and image throughout the franchise period, that the performance obligation is satisfied over the period of the franchise agreement, or in the case of specific brand development activities, deferred as a contract liability until such time as the related activity and associated costs are incurred. There were no impacts to the consolidate statement of cash flows as a result of adopting IFRS 15.

 

16

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

D. Current Accounting Policy Changes (continued)

 

IFRS 15 Revenue from contracts with customers

 

The majority of the Company’s revenues from contracts with customers are derived from the wholesale and retail sale of smoking accessories and cannabis products, and from franchise arrangements.

 

The Company evaluates whether the contracts it enters into meet the definition of a contract with a customer at the inception of the contract and on an ongoing basis if there is an indication of significant changes in facts and circumstances. Revenue is measured based on the transaction price specified in a contract with a customer. Revenue is recognized when control of the goods or services is transferred to the customer. For certain contracts, revenue may be recognized at the invoiced amount, as permitted using the invoice, if such amount corresponds directly with the Company’s performance to date. The Company excludes amounts collected on behalf of third parties from revenue.

 

Performance Obligations

 

Each promised good or service is accounted for separately as a performance obligation if it is distinct. The Company’s contracts may contain more than one performance obligation.

 

Transaction Price

 

The Company allocates the transaction price in the contract to each performance obligation. Transaction price allocated to performance obligations may include variable consideration. Variable consideration is included in the transaction price for each performance obligation when it is highly probable that a significant reversal of the cumulative variable revenue will not occur. Variable consideration includes variability in quantity and pricing as well as the right of return in certain distribution agreements. The consideration contained in the majority of the Company’s contracts with customers is primarily non-variable.

 

When multiple performance obligations are present in a contract, transaction price is allocated to each performance obligation in an amount that depicts the consideration the Company expects to be entitled to in exchange for transferring the good or service. The Company estimates the amount of the transaction price to allocate to individual performance obligations based on their relative standalone selling prices, which is primarily estimated based on the amounts that would be charged to customers under similar market conditions or is based on details of the respective agreements.

 

Other Items

 

Contract acquisition costs (including commissions)

 

Contract acquisition costs related to sales order and service type contracts are expensed immediately. The Company elects to use the practical expedient that permits immediate expensing of all contract acquisition costs where that contract is anticipated to be complete within one year.

 

Warranties

 

The Company does not offer an option to purchase additional warranties and does not provide any additional services as part of any warranty. The warranties provided relate to product compliance to agreed-upon specifications and are considered an assurance type warranty. Warranties will continue to be accounted for under previous IFRS guidance.

 

Consignment and principal verse agent considerations

 

The new revenue standard focuses on recognizing revenue as an entity transfers control of a good or service to a customer. This could affect how an entity evaluates its position in a transaction as either a principal or an agent. The new revenue standard provides that an entity is a principal in a transaction if it controls the specified goods or services before they are transferred to the customer. The Company has entered into an arrangement whereby assets are transferred by the Company to another party (a “Consignee”) for storage. The Company continues to act in the capacity of the principal as evidenced by the Company’s ability to control the assets until the sale of the product to an external customer.

 

17

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

  

D. Current Accounting Policy Changes (continued)

 

Right of return

 

The Company has entered into distribution agreements whereby the Company provides for a right of return to the distributor (reseller) of the Company’s products. The Company recognizes revenue based on the amount to which it expects to be ‘entitled’ through to the end of the return period (considering expected product returns). The Company recognizes the portion of the revenue subject to the right of return constraint once the amount is no longer constrained. The Company continually assesses the position that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration related to the right to return has been resolved.

 

Bill and hold arrangements

 

In some sales transactions, the Company fulfils its obligations and bills the customer for the work performed but does not ship the goods until a later date. These transactions are designed this way at the request of the customer and are typically due to the customer’s lack of available storage space for the product, or due to delays in the customer’s retail location construction schedules.

 

E. New Accounting Pronouncements

 

IFRS 16 Leases

 

In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term greater than twelve months, unless the underlying asset’s value is insignificant. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Lessors will continue to classify leases as operating or finance, with lessor accounting remaining substantially unchanged from the preceding guidance under IAS 17, Leases.

 

Management is currently executing its implementation plan. The most significant impact of IFRS 16 will be our initial recognition of the present value of unavoidable future lease payments as right-of-use assets under property, plant and equipment and the concurrent recognition of a lease liability on the consolidated statement of financial position. Majority of our property leases, which are currently treated as operating leases, are expected to be impacted by the new standard which will result in lower rent expense, higher depreciation expense and higher finance costs related to accretion and interest expense of the lease liability. IFRS 16 will also impact the presentation of the consolidated statement of cash flows by decreasing operating cash flows and increasing financing cash flows.

 

The standard will be effective for the Company for the fiscal year commencing November 1, 2019. The Company will measure the right-of-use asset at an amount equal to the lease liability on November 1, 2019, apply a single discount rate to leases with similar remaining lease terms for similar classes of underlying assets and will not separate non-lease components from lease components for certain classes of underlying assets.

 

Definition of a Business

 

In October 2018, the IASB issued “Definition of a Business (Amendments to IFRS 3)”. The amendments clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendment provides an assessment framework to determine when a series of integrated activities is not a business. The amendments are effective for business combinations occurring on or after the beginning of the first annual reporting period beginning on or after January 1, 2020. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.

 

18

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

4. Business Combinations

 

In accordance with IFRS 3, Business Combinations, these transactions meet the definition of a business combination and, accordingly, the assets acquired, and the liabilities assumed have been recorded at their respective estimated fair values as of the acquisition date.

 

A. Grasscity Acquisition

 

Total consideration   $  
Cash paid     4,732  
Share consideration     3,047  
Put option (Note 11)     2,853  
      10,632  
Net identifiable assets acquired (liabilities assumed)        
Cash     44  
Accounts receivable     80  
Prepaid expenses and deposits     125  
Inventory     1,274  
Property and equipment     63  
Intangible assets        
Software - Webstore     742  
Software - Forums     82  
Brand name     1,539  
Grasscity Forums     312  
      4,261  
Accounts payable and accrued liabilities     (704 )
Deferred tax liability     (498 )
      3,059  
Purchase price allocation        
Net identifiable assets acquired     3,059  
Goodwill     7,573  
      10,632  

 

On December 6, 2018, the Company entered into a share purchase agreement to acquire all of the issued and outstanding shares of three entities, SJV B.V., SJV2 B.V. and SJV USA Inc. that together operate under the name Grasscity. The transaction closed on December 19, 2018. Based in Amsterdam, Netherlands, Grasscity is an online retailer of smoking accessories and cannabis lifestyle products that has been operating for over 20 years. The Company acquired Grasscity to increase its customer base, establish an international presence, and to leverage synergies to further enhance High Tide’s vertically integrated supply chain and distribution networks. These synergies resulted in goodwill being recognized. Grasscity’s existing e-commerce channel will allow the Company to quickly establish an online presence and to expand its retail platform beyond the exisitng bricks-and-mortar locations. For the year ended October 31, 2019, Grasscity accounted for $4,349 in revenues and $1,285 in net loss since December 19, 2018. If the acquisition had been completed on November 1, 2018, the Company estimates it would have recorded an increase of $621 in revenues and an increase of $183 in net loss for the year ended October 31, 2019.

 

The Company acquired all of the issued and outstanding shares of Grasscity for aggregate consideration of $10,632 which included 8,410,470 common shares with a fair value of $3,047.

  

19

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

4. Business Combinations (continued)    

 

B. Dreamweavers Acquisition

 

Total consideration   $  
Cash paid     1,550  
Notes Payable     102  
Share consideration     1,147  
Warrants     295  
Total     3,094  
Net identifiable assets acquired        
Prepaid expenses and deposits     4  
Inventory     131  
Property and equipment     272  
Intangible assets - licenses     2,594  
Deferred tax liability     (700 )
Total     2,301  
Purchase price allocation        
Net identifiable assets acquired     2,301  
Goodwill     793  
Total     3,094  

 

On May 23, 2019, the Company, entered into a share purchase agreement to acquire all of the issued and outstanding shares of Dreamweavers Cannabis Products Ltd. (“Dreamweavers”). Based in Swift Current, Saskatchewan, Dreamweavers is a retailer for cannabis products and smoking accessories. The Company acquired Dreamweavers to increase its retail footprint, and to establish a presence in the province of Saskatchewan, it also allows the Company to sell cannabis through e-commerce and provides an opportunity to operate a wholesale cannabis operation. The Company acquired all of the issued and outstanding shares of Dreamweavers for aggregate consideration of $3,094 which included 3,100,000 common shares with a fair value of $1,147, 1,550,000 purchase warrants exercisable at $0.75 per common share of High Tide and notes payables of $300 repayable over five years with zero interest rate due at each aniversary date. The fair value of warrants were calculated as $295 using Black-Scholes model with the following assumptions: stock price of $0.37; expected life of 2 years; $Nil dividends; 130% volatility; and riskfree interest rate of 1.60%. The note payable has been recorded at its fair value of $102 by discounting it over five years at a market interest rate of 22%. The Company incurred various legal and due diligence related fees totalling $38; these costs have been included as professional fees in the consolidated financial statements. For the year ended October 31, 2019, Dreamweavers accounted for $841 in revenues and $7 in net loss since May 24, 2019. If the acquisition had been completed on November 1, 2018, the Company estimates it would have recorded an increase of $572 in revenues and an increase of $89 in net loss for the year ended October 31, 2019. Goodwill has been recognized as a result of the synergies between Dreamweavers and the Company’s retail business.

 

20

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

4. Business Combinations (continued)  

 

C. MK Light Acquisition

 

Total consideration   $  
Cash paid     202  
Settlement of debt     48  
Total     250  
Net identifiable assets acquired        
Leasehold improvements     21  
Inventory     4  
Total     25  
Purchase price allocation        
Net identifiable assets acquired     25  
Goodwill     225  
Total     250  

 

On November 1, 2018, the Company purchased all the assets of 2107746 Alberta Ltd. and MK Light It Up Inc.(“MK Light”) which had been operating a Smoker’s Corner franchise on Edmonton Trail in Calgary Alberta. The assets which included the leaseholds and inventory were purchased for $250 with $202 being settled in cash and the balance being used to settle all outstanding debts between MK Light, Smoker’s Corner Ltd. and RGR Canada Inc. The Company is currently using this location as a Canna Cabana retail store; which became operational on October 31, 2019. Goodwill has been recognized as a result of the synergies between MK Light and the Company’s retail business.

 

D. Jasper Ave. Acquisition

 

Total consideration   $  
Cash paid     75  
Settlement of debt     195  
Share consideration     205  
Total     475  
Net identifiable assets acquired     -  
Total     -  
Purchase price allocation        
Net identifiable assets acquired     -  
Goodwill     475  
Total     475  

 

On September 4, 2019, the Company acquired a Smoker’s Corner franchise located at 10275 Jasper Avenue in Edmonton, Alberta (“Jasper Ave.”). The total consideration paid to acquire the franchise was $475, of which $75 was paid in cash, issuance of 559,742 common shares of High Tide with a fair value of $205 and and the remaining balance being used to settle all outstanding debts between Jasper Ave., Smoker’s Corner Ltd. and RGR Canada Inc.. The Company has begun the process of converting the Jasper Avenue Store to a Canna Cabana retail location for the sale of recreational cannabis, subject to inspection and licensing by Alberta Gaming, Liquor and Cannabis. Goodwill has been recognized as a result of the synergies between Jasper Ave. and the Company’s retail business.

 

21

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

5. Revenue from Contracts with Customers

 

For the year ended October 31, 2019   Retail     Wholesale     Corporate     Total  
    $     $     $     $  
Primary geographical markets                        
Canada     19,875       4,693       606       25,174  
USA     3,684       1,901       -       5,585  
International     443       92       -       535  
Total revenue     24,002       6,686       606       31,294  
Major products and services                                
Cannabis     16,366       -       -       16,366  
Smoking accessories     6,603       6,478       -       13,081  
Franchise royalties and fees     953       -       562       1,515  
Interest and other revenue     80       208       44       332  
Total revenue     24,002       6,686       606       31,294  
Timing of revenue recognition                                
Transferred at a point in time     23,949       6,686       606       31,241  
Transferred over time     53       -       -       53  
Total revenue     24,002       6,686       606       31,294  

 

22

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

6. Property and Equipment

 

    Office equipment     Leasehold                    
    and computers     improvements     Vehicles     Buildings     Total  
    $     $     $     $     $  
Cost                              
Balance, October 31, 2017     49       321       163       -       533  
Additions     144       3,288       4       145       3,581  
Balance, October 31, 2018     193       3,609       167       145       4,114  
Additions (i) (Note 13)     196       6,823       -       2,655       9,674  
Additions from business combinations (Note 4)     63       293       -       -       356  
Impairment loss (ii)     -       (220 )     -       -       (220 )
Balance, October 31, 2019     452       10,505       167       2,800       13,924  
Accumulated depreciation                                        
Balance, October 31, 2017     25       311       96       -       432  
Depreciation     24       14       46       -       84  
Balance, October 31, 2018     49       325       142       -       516  
Depreciation     78       940       6       2       1,026  
Balance, October 31, 2019     127       1,265       148       2       1,542  
Net book value                                        
Balance, October 31, 2018     144       3,284       25       145       3,598  
Balance, October 31, 2019     325       9,240       19       2,798       12,382  

 

(i) Included in additions is $1,227 incurred for new buildout of leasehold improvements for the Company’s head office and warehouse in November and December 2018. The new head office and warehouse was available for use on January 1, 2019. The Company purchased a building in Niagara, Ontario, for the purpose of opening a Canna Cabana retail location. The consideration for the building consisted of $754 in cash, a $1,600 vendor take back loan (see note 13), and $300 paid in shares (see note 14).

 

(ii) In fiscal year 2019, the Company undertook a strategic shift with regards to its Smoker’s Corners operations, pivoting focus towards Canna Cabana. As a result of the strategic shift, an impairment test was performed on the CGU’s related to Smoker’s Corner. Negative cash flow projections indicated impairment as the carrying value exceeded the respective recoverable amount of the corresponding CGU. As a result, the assets were written down to their recoverable amount of nil.

 

23

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

7. Intangible Assets and Goodwill

 

    Software     Licenses     Lease
buy-out
    Brand Name     Goodwill     Total  
      $       $       $       $       $       $  
Cost                                                
Balance, October 31, 2017     -       -       -       -       -       -  
Additions     159       -       777       -       -       936  
Balance, October 31, 2018     159       -       777       -       -       936  
Additions     553       -       1,780       -       -       2,333  
Additions from business combinations (Note 4)     1,136       2,594       -       1,539       9,066       14,335  
Impairment loss     -       -       -       -       (4,600 )     (4,600 )
Balance, October 31, 2019     1,848       2,594       2,557       1,539       4,466       13,004  
Accumulated depreciation                                                
Balance, October 31, 2017     -       -       -       -       -       -  
Amortization     2       -       -       -       -       2  
Balance, October 31, 2018     2       -       -       -       -       2  
Amortization     109       75       191       -       -       375  
Balance, October 31, 2019     111       75       191       -       -       377  
Foreign currency translation                                                
Balance, October 31, 2018     -       -       -       -       -       -  
Recorded in other comprehensive loss     60       -       -       57       336       453  
Balance, October 31, 2019     60       -       -       57       336       453  
Net book value                                                
Balance at October 31, 2017     -       -       -       -       -       -  
Balance at October 31, 2018     157       -       777       -       -       934  
Balance, October 31, 2019     1,677       2,519       2,366       1,482       4,130       12,174  

 

The carrying values of goodwill and intangible assets with indefinite lives are tested for impairment annually. The Company completed its annual impairment tests as of October 31, 2019 and has included a summary of the key inputs below for each CGU to which goodwill and indefinite life intangibles have been allocated.

 

Grasscity:

 

All goodwill and indefinite life intangibles acquired in the Grasscity acquisition were allocated to the Grasscity CGU. The Company performed its annual impairment test at October 31, 2019 and the recoverable amount of the Grasscity CGU was determined based on fair value less cost of disposal, determined using an income approach with the following key assumptions:

 

i. 5-year cash flow projections expected to be generated based on historical performance, financial forecasts and growth expectations. Cash flows beyond 5 years used a terminal growth rate of 2%;

 

ii. Forecasted revenue at an average growth rate of 16%;

 

iii. Average forecasted earnings before interest, tax, depreciation and amortization (“EBITDA”) of 14%; and,

 

iv. Cash flows were discounted at an after-tax discount rate of 20.50 % based on a market participant weighted average cost of capital.

 

As a result of the impairment test performed, the recoverable amount was determined to be approximately $5,483, which resulted in an impairment of $4,600. The most sensitive inputs to the fair value model are the forecasted EBITDA and discount rate.

 

All else being equal:

 

i. A 2% increase in the discount rate would have resulted in an impairment of approximately $5,211: and,

 

ii. A 2% decrease in the average forecasted EBITDA would have resulted in an impairment of approximately $6,165.

 

24

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

7. Intangible Assets and Goodwill (continued)

 

Dreamweaver:

 

All goodwill acquired in the Dreamweavers acquisition was allocated to the Dreamweavers CGU. The Company performed its annual impairment test at October 31, 2019 and the recoverable amount of the Dreamweavers CGU was determined based on fair value less cost of disposal calculation determined an income approach with the following key assumptions:

 

i. 5 year cash flow projections expected to be generated based on historical performance, financial forecasts and growth expectations. Cash flows beyond 5 years used a terminal growth rate of 2%;

 

ii. Forecasted revenue at an average growth rate of 25%;

 

iii. Average forecasted EBITDA of 14%; and,

 

iv. Cash flows were discounted at an after-tax discount rate of 17% based on a market particpants weighted average cost of capital and risks specific to the particular CGU.

 

As a result of the impairment test performed, the recoverable amount was determined to be approximately $3,284, which exceeds the carrying amount by approximately $312, and therefore, did not result in an impairment. The most sensitive inputs to the fair value model are the forecasted EBITDA and discount rate.

 

All else being equal:

 

i. A 2% increase in the discount rate would have resulted in an impairment of approximately $127; and,

 

ii. A 2% decrease in the average forecasted EBITDA would not have resulted in an impairment.

 

MK Light:

 

All goodwill acquired in the MK Light acquisition was allocated to the MK Light CGU. The Company performed its annual impairment test at October 31, 2019 and the recoverable amount of the MK Light CGU was determined based on a VIU calculation using the following key assumptions:

 

i. 5 year cash flow projections expected to be generated based on, financial forecasts and growth expectations. Cash flows beyond 5 years used a terminal growth rate of 2%;

 

ii. Forecasted revenue of $1,745 for 2020 and an average annual growth rate of 2% thereafter;

 

iii. Average forecasted EBITDA of 12%; and,

 

iv. Cash flows were discounted at an after-tax discount rate of 23% based on the Company’s post-tax weighted average cost of capital and risks specific to the particular CGU (pre-tax discount rate of 31%).

 

As a result of the impairment test performed, the recoverable amount was determined to be approximately $670 which exceeds the carrying amount by approximately $114, and therefore, did not result in an impairment. The most sensitive inputs to the VIU model are the forecasted EBITDA and discount rate.

 

All else being equal:

 

i. A 2% increase in the discount rate would have resulted in a recoverable amount of $610, which would not have resulted in an impairment; and,

 

ii. A 2% decrease in the average forecasted EBITDA would have resulted in an impairment of $36.

 

25

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

7. Intangible Assets and Goodwill (continued)

 

Jasper Ave:

 

All goodwill acquired in the Jasper Ave. acquisition was allocated to the Jasper Ave. CGU. The Company performed its annual impairment test at October 31, 2019 and the recoverable amount of the Jasper Ave. CGU was determined based on a fair value less cost of disposal calculation, determined using an income approach with the following key assumptions:

 

i. 5 year cash flow projections expected to be generated based on financial forecasts and growth expectations. Cash flows beyond 5 years used a terminal growth rate of 2%;

 

ii. Forecasted revenue of $1,148 from May to October 2020 and an average annual growth rate of 2% thereafter;

 

iii. Average forecasted EBITDA of 12%; and,

 

iv. Cash flows were discounted at an after-tax discount rate of 23% based on a market participants weighted average cost of capital and risks specific to the particular CGU.

 

As a result of the impairment test performed, the recoverable amount was determined to be approximately $600, which exceeds the carrying amount by approximately $125, and therefore, did not result in an impairment. The most sensitive inputs to the fair value less costs to sell model are the forecasted EBITDA and discount rate.

 

All else being equal:

 

i. A 2% increase in the discount rate would not have resulted in an impairment,

 

ii. A 2% decrease in the average forecasted EBITDA would have resulted in an impairment of approximately $55.

 

8. Prepaid expenses and deposits

 

    2019     2018  
    $     $  
Business acquisition deposit     300       897  
Deposits on cannabis retail outlets and warehouse     1,380       1,039  
Prepaid insurance, licenses and other     1,833       405  
Prepaid marketing contract     -       2,400  
Advances to related party for purchases of inventory     -       863  
Advances to third party vendor for purchases of inventory     385       504  
Other receivable from related parties     -       23  
Total     3,898       6,131  
Less current portion     (2,518 )     (4,931 )
Long term portion     1,380       1,200  

 

9. Inventory

 

    2019     2018  
    $     $  
Finished goods     7,092       4,054  
Provision for obsolescence     (373 )     (591 )
      6,719       3,463  

 

(i) Inventories recognized as an expense and included in cost of sales during the year ended October 31, 2019 totaled $17,728 (2018 – $3,960).

 

26

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

10. Loans Receivable

 

    2019     2018  
    $     $  
Term loans (i)     1,139       62  
Demand loan (ii)     -       1,094  
Demand loan written-off (Note 23)     -       (1,094 )
Total loans receivable     1,139       62  
Less current portion     (261 )     (62 )
Long-term portion     878       -  

 

(i) Term loans are due from franchisees and relate to acquisitions of the sub-lease location from the Company and initial inventory. Term loans are secured by promissory notes, bear interest between 6.95% and 8.00 % (2018 - ranging between 5.00 % and 7.00 %) per annum and require blended payments of principal and interest between $4 and $10 monthly. (2018 - ranging between $0.8 and $4 monthly). The Company maintains the head lease to all franchisee locations.

 

(ii) Demand loans are unsecured, non-interest bearing and are due on demand.

 

11. Derivative Liability

 

The put option issued on the Grasscity acquistion on December 19, 2019 was initially measured at $2,853 using a monte-carlo simulation and the following assumptions: stock price: $0.3623; expected life of 1 year; $nil dividends; expected volatility of 126% based on comparable companies; exercise price of $0.50; and risk-free interest rate of 1.65%.

 

On October 31, 2019, the Company revalued the fair value of the derivative liability and recognized an unrealized gain of $732 in the consolidated statements of loss and other comprehensive loss. The derivative liability was revalued to $2,121 using monte-carlo simulation and the following assumptions: stock price: $0.25; expected life of 1 year; $nil dividends; expected volatility of 92% based on comparable companies; exercise price of $0.50; and risk-free interest rate of 1.65%.

 

12. Finance Lease Obligation

 

    2019     2018  
    $     $  
3.49% per annum vehicle loan, payable in monthly installments of $0.5 including principal and interest, maturing in June 2022. The vehicle has been pledged as security.     17       23  
Less: current portion     (6 )     (6 )
      11       17  

  

13. Notes payable

 

On June 26, 2019, the Company purchased a building in Niagara, Ontario, for the purpose of opening a Canna Cabana retail location. The consideration for the building consisted of $754 in cash, out of which $54 was legal fees, a $1,600 vendor take back loan, and $300 paid in shares. The loan has a twelve-month term and bears an interest rate of 5.5% per annum payable monthly with a maturity date of June 30th, 2020.

 

On May 23, 2019, the Company acquired all of the issued and outstanding shares of Dreamweavers for aggregate consideration of $3,094 which included 3,100,000 common shares with a fair value of $1,147, 1,550,000 purchase warrants exercisable at $0.75 per common share of High Tide and notes payables of $300 repayable over five years with zero interest rate due at each anniversary date. Notes payable was valued at $102 by discounting it over five years at market interest rate of 22%. During, the year ended October 31, 2019, the Company incurred accretion of $11.

 

27

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

13. Notes payable (continued)

 

On September 4, 2019, the Company entered into a $2,000 loan agreement with a private lender. The loan had a twelve-month term and carried an interest rate of 12% per annum payable monthly. In connection with the advance of the loan, the Company issued 1,600,000 warrants to the lender. Each warrant is redeemable for one common share in the capital of the Company at a price of $0.85 per Common Share for a period of two years from the date of the loan agreement. Management calculated the fair value of the liability component as $1,895 using a discount rate of 22%, with the residual amount of $105 being allocated to warrants, recorded in equity. During, the year the Company incurred accretion of $15. The loan was personally guranteed by the CEO and Shareholder.

 

    2019  
    $  
Opening balance     -  
Vendor loan     1,600  
Term loan     1,910  
Dreamweavers - notes payable     122  
Total     3,632  
Less current portion     (3,570 )
Long-term     62  

 

    2019  
    $  
Notes payable, beginning of year     -  
Cash advances from debt     2,000  
Vendor loan advanced     1,711  
Transfer of conversion and warrants component to equity     (105 )
Accretion on notes payable     26  
Notes payable, end of year     3,632  

 

14. Finance and other costs

 

Finance and other costs are comprised of the following:

 

    2019     2018  
    $     $  
Accretion expense     1,476       -  
Interest on convertible debenture     1,423       -  
Interest on notes payable     84       -  
Listing expenses     106       499  
Total     3,089       499  

 

15. Convertible Debentures

 

(i) On November 28, 2018, the Company entered into an agreement for a brokered private placement for the sale of up to 20,000 unsecured convertible debentures of the Company, at a price of $1 per debenture for gross proceeds of up to $20,000. The debentures bear interest at a rate of 8.5% per annum, payable on the last business day of each calendar quarter. The debentures are convertible to common shares of the Company at a price of $0.75 per common share and mature two years from the closing of the offering. The first closing occurred on December 13, 2018 issuing 11,330 debentures at a price of $1 per debenture for gross proceeds of $11,330. The company incurred $618 in issue costs in relation to the first closing which included the 504,733 broker warrants valued at $93 using Black-Scholes model with the following assumptions: stock price of $0.36; expected life of 2 years; $Nil dividends; 130% volatility; and risk-free interest rate of 1.60%. Each broker warrant is exercisable for one common share of the Company at a price of $0.75 per share until December 11, 2020.

 

28

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

15. Convertible Debentures (continued)

  

Management calculated the fair value of the liability component as $8,907 using a discount rate of 22%, with the residual amount of $2,422 net of deferred tax of $654 being allocated to the conversion feature recorded in equity. The Company incurred $618 in debt issuance cost, $486 was allocated to debt component and the remaining $132 to the equity.

 

(ii) On April 10, 2019, the Company closed the first tranche of the sale of unsecured convertible debentures of the Company under a non-brokered private placement for gross proceeds of $8,360. The outstanding principal amount is convertible at any time before maturity at the option of the holder, into common shares of the Company at a conversion price of $0.75 per share and mature two years from the closing of the private placement. Under the private placement, the Company also issued common share purchase warrants such that each subscriber received one warrant for each $0.75 original principal amount of its debenture, resulting in 11,146,667 warrants being issued as part of the offering. Each warrant entitles the holder to acquire one share at an exercise price of $0.85 per share for two years from the date of issuance. The company incurred $50 in legal costs which was paid by the issuance of 100,000 shares with a fair value of $0.50 per share. The debentures bear interest at a rate of 10% per annum, payable annually upfront in common shares of High Tide based on the 10-day volume weighted average price of $0.48 prior to the closing date of the private placement. Concurrent with the issuance of the debentures, the Company paid the annual amount of interest due to holders upfront in the form of 1,752,621 Shares.

 

Management calculated the fair value of the liability component as $7,138 using a discount rate of 22%, with the residual amount of $1,222 net of deferred tax of $330 being allocated to warrants, recorded in equity. The Company incurred $58 in debt issuance cost, $50 being allocated to debt component and the remaining $8 to the warrants.

 

(iii) On June 17, 2019, the Company closed the final tranche of the sale of unsecured convertible debentures of the Company under the non-brokered private placement for gross proceeds of $3,200. The outstanding principal amount is convertible at any time before maturity at the option of the holder, into common shares of the Company at a conversion price of $0.75 per share and mature two years from the closing of the offering. Under the offering, the Company also issued common share purchase warrants such that each subscriber received one warrant for each $0.75 original principal amount of its debenture, resulting in 4,266,667 warrants being issued as part of the offering. Each warrant entitles the holder to acquire one share at an exercise price of $0.85 per share for two years from the date of issuance. The debentures will bear interest at a rate of 10% per annum, payable annually upfront in common shares of High Tide based on the 10-day volume weighted average price of $0.384 prior to the closing date of the offering. Concurrent with the final tranche issuance of the debentures, the Company paid the annual amount of interest due to holders upfront in the form of 855,615 Shares.

 

Management calculated the fair value of the liability component as $2,732 using a discount rate of 22%, with the residual amount of $468 net of deferred tax of $126 being allocated to warrants, recorded in equity.

 

    2019  
    $  
Convertible debentures, beginning of year     -  
Cash advances from debt     22,890  
Debt issuance costs paid in cash     (471 )
Debt issuance costs paid in equity instruments     (93 )
Transfer of warrants component to equity     (1,690 )
Transfer of conversion component to equity     (2,422 )
Repayment of debt     -  
Accretion on convertible debentures     1,450  
Convertible debentures, end of year     19,664  

  

29

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

16. Taxes

 

Reconciliation of effective tax rate:

 

The provision for income taxes differs from the result that would have been obtained by applying the consolidated federal and provincial tax rates to the income before taxes. The difference results from the following items:

 

    2019     2018  
    $     $  
Current tax expense     -       -  
Deferred tax expense (recovery)     (708 )     (1,496 )
      (708 )     (1,496 )
Reconciliation of effective tax rate                
Income (loss) before taxes     (27,000 )     (6,029 )
Statutory income tax rate     27 %     27 %
Expected tax expense (recovery)     (7,290 )     (1,627 )
                 
Increase (decrease) in taxes resulting from:                
Rate differential     535       382  
Permanent differences     1,633       18  
Other items     348       (267 )
Unrecognized deferred tax assets     4,066       -  
Tax expense (recovery)     (708 )     (1,495 )
                 
Deferred tax asset (liability) is comprised of the following:                
Opening     1,974       479  
Recovery (expense) on income statement     708       1,495  
Deferred tax effect in equity     (1,004 )     -  
Tax effect on business combination:     (1,198 )     -  
Ending     480       1,974  
                 
Deferred tax asset (liability) is comprised of the following:                
Non-capital loss carry forwards     5,327       1,162  
PPE & Intangible     (1,386 )     (76 )
Others     470       729  
Capital loss carry forwards     135       158  
Unrecognized deductible temporary differences:     (4,066 )     -  
Net deferred tax asset     480       1,974  
                 
Net deferred tax asset (liability) reconciliatoin:                
Net deferred tax asset:     1,190       1,974  
Net deferred tax liability:     (710 )     -  
Total:     480       1,974  

 

The following provides the details of gross unrecognized deductible temporary differences and unused losses for which no deferred tax asset has been recognized:

 

    2019     2018  
    $     $  
Non-capital loss carry forwards     14,612       1,162  
PPE & Intangibles     313       (76 )
Others     1,556       729  
Capital loss carry forwards     1,173       158  
Unrecognized deductible temporary differences     17,655       1,974  

 

The Company’s estimated non-capital loss carry forwards is approximately $22,305,326 which begins to expire in 2036.

  

30

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

17. Share Capital

 

(a) Issued:

 

Common shares: 

    Number of shares     Amount  
    #     $  
Balance, October 31, 2017     18,400,200       667  
Issued for cash (i)     11,113,817       445  
Issued on debt conversion (ii)     20,486,183       852  
Issued for services rendered (iii)     3,500,000       146  
Issued on conversion of convertible debentures (Note 20(i))     5,017,012       669  
Issued on incorporation of High Tide Inc. (iv)     2,760,000       20  
Issued to acquire common shares of RGR ((v)(i))     6,128,304       1,196  
Issued to acquire preferred shares of RGR ((v)(i))     45,128,840       8,804  
Issued to acquire common shares of Smoker’s ((v)(ii))     6,024,250       1,175  
Issued to acquire preferred shares of Smoker’s ((v)(ii))     50,358,600       9,825  
Issued to acquire common shares of Famous Brandz ((v)(iii))     30,324,120       10,987  
Eliminated upon reorganization ((v)(iii))     (58,517,212 )     (2,779 )
Issued for cash on private placement (vi)     10,225,800       3,705  
Share issue costs – broker warrants (vi)     -       (158 )
Share issue cost – cash (vii)     -       (263 )
Tax effect on share issue costs     -       114  
Issued upon asset acquisition (vii)     800,000       290  
Balance, October 31, 2018     151,749,914       35,695  
Issued upon listing of securities (viii), (Note 19)     36,728,474       13,051  
Issued upon closing of Grasscity acquisition (Note 4a)     8,410,470       3,047  
Issued to pay fees in shares (x)     4,042,203       1,607  
Issued to pay interest via shares (Note 15)     2,608,236       1,156  
Reduction in share capital (ix)     -       (29,699 )
Issued upon closing of Dreamweavers acquisition (Note 4b)     3,100,000       1,147  
Share-based compensation (Note 24)     200,000       71  
Exercise - broker warrants (Note 20)     7,590       3  
Issued upon closing of Jasper Ave. acquisition (Note 4d)     559,742       205  
Balance, October 31, 2019     207,406,629       26,283  

 

(i) Famous Brandz issued 11,113,817 common shares to existing shareholders for cash totalling $445.

 

(ii) Balances due to Smoker’s and RGR by Famous Brandz totalling $852 were converted into 20,486,183 common shares at fair value determined upon conversion.

 

(iii) Famous Brandz issued 3,500,000 common shares to arms length parties for consulting services having a value of $146.

 

(iv) Upon incorporation of High Tide on February 8, 2018, 2,760,000 (pre-share split: 1,000,000) common shares at a price of $0.0073 per share (pre-share split: $0.02 per share), totalling $20 were issued.

  

31

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

17. Share Capital (continued)

 

(v) On February 28, 2018 and April 30, 2018 (“Reorganization Date”), both RGR Canada Inc. (“RGR”), Smoker’s Corner Ltd. (“Smoker’s”), and then Famous Brandz Inc. (“Famous Brandz”), respectively, became wholly owned subsidiaries of a newly created High Tide following a corporate reorganization whereby the shareholders of RGR, Smoker’s and Famous Brandz transferred all of their ownership interests in exchange for fully-paid common shares of High Tide as follows:

 

(i) On February 28, 2018, High Tide issued 6,128,304 (pre-share split: 2,220,400) Class A common shares at a price of $0.1949 per share (pre-share split: $0.538 per share) totalling $1,196 to acquire 100 Class A common shares of RGR from its shareholders and issued 45,128,840 (pre-share split: 16,351,029) Class A common shares at a price of $0.1949 per share (pre-share split: $0.538 per share) totalling $8,804 to acquire 88,044 preferred shares of RGR from its holders;

 

(ii) On February 28, 2018, High Tide issued 6,024,250 (pre-share split: 2,182,700) Class A common shares at a price of

$0.1949 per share (pre-share split: $0.538 per share) totalling $1,175 to acquire 100 Class A common shares of Smoker’s from its shareholders and issued 50,358,600 (pre-share split: 18,245,871) Class A common shares at a price of $0.1949 per share (pre-share split: $0.538 per share) totalling $9,825 to acquire 98,247 preferred shares of Smoker’s from its holders;

 

(iii) On April 30, 2018, High Tide issued 30,324,120 (pre-share split: 10,987,000) Class A common shares at a price of $0.3623 per share (pre-share split: $1.00 per share) totaling $10,987 to acquire 58,517,012 Class A common shares of Famous Brandz and issued 1,194,590 High Tide warrants with fair value of $243 to acquire Famous Brandz’ warrants; and

  

(iv) Declared dividends totalling $4,492, which were settled as follows: cash of $1,155, assignment of marketable securities with carrying value at the date of dividend declaration totaling $675, assignment of common shares of Famous Brandz owned by RGR and Smoker’s totaling $1,006 and assignment of net related party balance totaling $1,654 (comprised of advances to related companies, related through common shareholders, and shareholder loans).

 

The carrying values of the common shares, preferred shares and warrants acquired by High Tide totalled $2,779, $18,629, and $31, respectively in the accounting records of respective entities. Since the carrying values were lower than the fair value of High Tide common shares and warrants (totalling $32,228) issued, the additional value of $10,789 was recorded against accumulated deficit as this was a related party transaction.

 

(vi) On May 2, 2018, the Company closed a private brokered placement offering for 10,225,800 (pre-share split: 3,705,000) common shares at $0.3623 per share (pre-share split: $1.00 per share), for gross proceeds totalling $3,705. The Company paid brokers’ fees consisting of a cash payment of $263 and 670,680 (pre-share split: 243,000) broker warrants, which are exercisable at $0.3623 each (pre-share split: $1.00 each). These warrants were valued at $158 using Black Scholes option pricing model using the following assumptions: - Rate free interest rate: 1.77% - Expected volatility: 130% - Expected life in years: 2 - Expected dividends: Nil

  

(vii) On October 17, 2018, the Company completed the acquisition of all the issued and outstanding shares of Smiley’s Cannabis and Budz Ltd. in Okotoks, Alberta (“Smiley’s”). The acquisition provides the Company with an additional retail location and development permit to operate a recreational cannabis store. Management determined that the acquisition of Smiley’s did not meet the definition of a business in accordance with IFRS 3 Business Combinations, as it did not have the inputs, processes and outputs required to meet the definition of a business. Accordingly, the acquisition has been accounted for as an asset acquisition. As consideration, 800,000 common shares of the Company were issued having a value of $290, based on the share price of the Company on October 17, 2018 of $0.3623 per share. Smiley’s assigned its assets, being a permitted lease, and a cash lease deposit totaling $12, to Canna Cabana and then Smiley’s was dissolved on October 29, 2018. The deposit, representing the first two monthly lease payments, was expensed during the year. As a result of the transaction, $277, representing the value of the lease, was recorded as an intangible asset.

 

(viii) On November 20, 2018, the Company filed its final prospectus in connection with its proposed initial public offering. The final prospectus qualified, and the Company distributed, 36,728,474 common shares.

 

(ix) The Board of Directors received approval from the shareholders at the Company’s Annual General Meeting, through a special resolution, to reduce its stated capital, in accordance with Part V, paragraph 37 of the Business Corporations Act, and reduce its retained deficit by $29,699.

 

(x) During, the year ended October 31, 2019, the Company settled payables of $1,717 through issuance of 4,042,203 common shares of the Company which were valued at $1,607. The difference of $110 was recognized as a gain on extinguishment of financial liability.

  

32

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

18. Stock Option Plan:

 

The Company’s stock option plan limits the number of common shares reserved under the plan from exceeding a “rolling maximum” of ten (10%) percent of the Company’s issued and outstanding common shares from time to time. The stock options vest at the discretion of the Board of Directors, upon grant to directors, officers, employees and consultants of the Company and its subsidiaries. All options that are outstanding will expire upon maturity, or earlier, if the optionee ceases to be a director, officer, employee or consultant or there is a merger, amalgamation or change in control of the Company. One-fourth vesting immediately, one-fourth twelve months after the option grant date, one-fourth eighteen months after the option grant date and one-fourth twenty-four months after the option grant date. The maximum exercise period of an option shall not exceed 10 years from the grant date. Changes in the number of stock options, with their weighted average exercise prices, are summarized below:

 

    October 31, 2019     October 31, 2018  
        Weighted Average         Weighted Average  
    Number of options     Exercise Price ($)     Number of options     Exercise Price ($)  
Balance, beginning of year     -       -       -       -  
Granted     12,410,000       0.50       -       -  
Forfeited     (1,800,000 )     0.50       -       -  
Balance, end of year     10,610,000       0.50       -       -  
Exercisable, end of year     5,966,875       0.50       -       -  

 

During, the year ended October 31, 2019, the Company granted 12,410,000 incentive stock options to various officers, directors, employees and consultants. Subsequent to the grant date, 1,800,000 options were forfeited. The options were valued using the Black-Scholes model utilizing the following, weighted average assumptions:

 

Risk Free Rate – 1.56%

Volatility – 130%

Option life – 2 years

Exercise price - $0.50

Forfeiture rate – 0%

 

    Outstanding           Exercisable  
Issue date   Exercise price     Number of Options     Remaining contractual life     Number of Options     Remaining contractual life  
    $     #     (years)     #     (years)  
November 21, 2018     0.50       7,862,500       2.06       4,342,500       2.06  
April 30, 2019     0.50       2,247,500       2.50       1,499,375       2.50  
June 20, 2019     0.50       500,000       2.64       125,000       2.64  
      0.50       10,610,000       2.40       5,966,875       2.40  

 

For the year ended October 31, 2019, the Company recorded share-based compensation of $2,119 (2018 -$0) related to stock options. The weighted average fair value of stock options granted during the year ended October 31, 2019 was $0.21 (2018 - nil) per option.

  

33

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

19. Special Warrants

 

    Number of special warrants     Amount  
    #     $  
Balance, October 31, 2017     -       -  
Special warrants issued August 22, 2018 (i)     17,911,459       8,956  
Issue costs – Cash     -       (582 )
Issue costs – Broker warrants     -       (247 )
Issue costs – Legal fees     -       (178 )
Special warrants issued October 2, 2018 (ii)     18,817,015       9,409  
Issue costs – Cash     -       (612 )
Issue costs – Broker warrants     -       (259 )
Issue costs – Legal fees     -       (123 )
Tax effect on share issue costs     -       540  
Balance, October 31, 2018     36,728,474       16,904  
Special warrants converted into units* on November 27, 2018     (36,728,474 )     (16,904 )
Balance, October 31, 2019     -       -  

 

* Each unit comprised of 1 share and ½ purchase warrant, with each full warrant exercisable to acquire one common share at $0.75.

 

(i) On August 22, 2018, the Company closed a private placement offering of special warrants (the “Special Warrants”) for aggregate proceeds of $8,956. Pursuant to the Special Warrant offering, the Company issued 17,911,459 (preshare split 6,489,659) warrants at a price of $0.50 (pre-share split $1.38) per Special Warrant. Each Special Warrant is automatically exercisable, with no additional consideration, into units of the Company on the date the Company obtains receipt from the applicable securities’ regulatory authorities for a final prospectus. Each Special Warrant entitles the holder thereof to 1 common share and ½ common share purchase warrant of the Company. Each full purchase warrant will be exercisable to acquire one common share at a price of $0.75 (pre-split $2.07) per purchase warrant until November 26, 2020, being two years from the initial day of trading of the Company’s securities. On closing of the offering of Special Warrants, the Company paid agents’ commissions of $582 and legal fees and expenses of $178. The Company also issued 1,164,245 (pre-split: 421,828) broker warrants, with each broker warrant convertible into units of the Company for $0.50 (pre-split - $1.38). Each unit will comprise 1 share and ½ purchase warrant, with each full warrant exercisable to acquire one common share at $0.75 (pre-split - $2.07). The broker warrants issued to the agents were fair valued at $247 calculated using Black Scholes option pricing model using the following assumptions: Risk free interest rate: 2.11%, Expected volatility: 130%, Expected life in years: 2, Expected dividends: $Nil

 

(ii) On October 2, 2018, the Company closed a private placement offering of special warrants (the “Special Warrants”) for aggregate proceeds of $9,409. Pursuant to the Special Warrant offering, the Company issued 18,817,015 (preshare split 6,817,759) Special Warrants at a price of $0.50 (pre-share split $1.38) per Special Warrant. Each Special Warrant is automatically exercisable, with no additional consideration, into Units of the Company on the date that the Company obtains receipt from the applicable security’s regulatory authorities for a final prospectus (the “Qualifying Prospectus”). Each Special Warrant entitles the holder thereof to 1 common share and ½ common share purchase warrant of the Company. Each full purchase warrant will be exercisable to acquire one common share at a price of $0.75 (pre-split $2.07) per purchase warrant until November 26, 2020, being two years from the initial day of trading of the Company’s securities. On closing of the offering of the Special Warrants, the Company paid agents’ commissions of $612 and legal fees and expenses of $123. The Company also issued 1,223,105 (pre-split: 443,154) broker warrants with each broker warrant convertible into units of the Company for $0.50 (pre-split - $1.38). Each unit will comprise 1 share and ½ purchase warrant, with each full warrant exercisable to acquire one common share at $0.75 (pre-split - $2.07). The broker warrants issued to the agents were fair valued at $259 calculated using the Black Scholes option pricing model using the following assumptions: Risk free interest rate: 2.27%, Expected volatility: 130%, Expected life in years: 2, Expected dividends: Nil

  

34

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

20. Warrants

 

Outstanding warrants at October 31, 2019 were as follows:

 

    Number of warrants       Amount         Weighted average exercise price     Weighted
average
number of
years to expiry
      Expiry dates     
    #     $     $              
                               
Balance, October 31, 2017     -       -       -       -     -  
Issued in exchange for Famous Brandz’s warrants (i)     1,194,590       243       0.4975       0.14     April 29, 2020  
Issued to brokers for private placement (Note 17(vi))     670,680       158       0.3623       0.08     April 29, 2020  
Issued to brokers for special warrant financing (Note 19(i))     1,164,245       246       0.3246       0.22     August 21, 2020  
Issued to brokers for special warrant financing (Note 19(ii))     1,223,105       259       0.3246       0.26     October 1, 2020  
Balance, October 31, 2018     4,252,620       906       0.3773       0.70        
Special warrants converted into units November 27, 2018 (Note 19)     18,364,236       3,853       0.7500       0.45     November 26, 2020  
Issued to brokers for financing (Note 15(i))     504,733       93       0.7500       0.01     December 10, 2020  
Issued warrants on Convertibile debt April 18, 2019 (Note 15(ii))     11,146,667       885       0.8500       0.37     April 17, 2021  
Issued warrants for acquisition - Dreamweavers (Note 4b)     1,550,000       295       0.7500       0.06     May 22, 2021  
Issued warrants on convertibile debt June 17, 2019 (Note 14(iii))     4,266,667       340       0.8500       0.16     June 16, 2021  
Issued warrants for services (ii)     2,000,000       132       0.5000       0.01     January 24, 2020  
Issued warrants on debt September 04, 2019 (Note 13)     1,600,000       105       0.8500       0.07     September 3, 2021  
Warrants exercised     (7,590 )     -       -       -     -  
Balance, October 31, 2019     43,677,333       6,609       0.6083       1.13        

 

As at October 31, 2019 all 43,677,333 warrants were exercisable.

 

i) Prior to the corporate reorganization, Famous Brandz issued 721 units of unsecured convertible debentures with warrants at a price of $1,000 per unit for total proceeds of $721. The debentures were converted into common share of Famous Brandz prior to the corporate reorganization. Total shares issued on conversion was 5,017,012 for a value of $669. The change in the fair value of the conversion feature and accretion totaled $28,415 and $7,709, respectively during the period the convertible debentures were outstanding during the year. As part of the corporate reorganization, the Company issued 1,194,590 (pre-share split: 432,822) warrants with an exercise price of $0.4975 (pre-share split: $1.373) in exchange for 3,403,333 Famous Brandz warrants of which 2,403,333 warrants related to the convertible debentures and 1,000,000 were other warrants. The 1,194,590 warrants were valued at $243 using Black Scholes option pricing model using the following assumptions: - Risk free interest rate: 1.77% - Expected volatility: 130% - Expected life in years: 2 - Expected dividends: Nil

 

ii) On July 29, 2019, the Company issued 2,000,000 warrants for business development consultancy. Each warrant will allow the holder to acquire one common share at $0.50 for six months. The warrants were valued at $132 using the Black-Scholes model as, the fair value of the services provided cannot be measured reliably and the following assumptions were used: stock price of $0.42; expected life of six month; $nil dividends; expected volatility of 78% based on comparable companies; exercise price of $0.50; and a risk-free interest rate of 1.6%.

 

35

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

21. Loss Per Share

 

          Year ended  
          October 31  
    2019     2018  
    $     $  
Net Loss for the year   (26,292 )   (4,533 )
Non-controlling interest     166       13  
Net Loss for the year attributable to owners of the Company     (26,126 )     (4,520 )
      #       #  
Weighted average number of common shares - basic and diluted     198,181,696       107,223,734  
Basic loss per share     (0.13 )     (0.04 )
Dilutive loss per share(i)     (0.13 )     (0.04 )

 

(i) For the year ended October 31, 2019, the stock-options and warrants outstanding were excluded from the calculation of diluted loss per share as they were anti-dilutive.

 

22. Financial Instruments and Risk Management

 

The Company’s activities expose it to a variety of financial risks. The Company is exposed to credit, liquidity, and market risk due to holding certain financial instruments. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance.

 

Risk management is carried out by senior management in conjunction with the Board of Directors.

 

Fair value

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted marketable securities, loans receivable, accounts payable and accrued liabilities, notes payable, convertible debentures, derivative liabilities and shareholders’ loans.

 

IFRS 13 establishes a three-level hierarchy that prioritizes the inputs relative to the valuation techniques used to measure fair value. Fair values of assets and liabilities included in Level 1 of the hierarchy are determined by reference to quoted prices in active markets for identical assets and liabilities. Fair value of assets and liabilities in Level 2 are determined using inputs other than quoted prices for which all significant outputs are observable, either directly or indirectly. Fair value of assets and liabilities in Level 3 are determined based on inputs that are unobservable and significant to the overall fair value measurement. Accordingly, the Company has categorized its financial instruments carried at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The Company’s cash and cash equivalents are subject to Level 1 valuation.

 

The marketable securities and derivative liability have been recorded at fair value based on level 2 inputs. The carrying values of accounts receivable, accounts payable and accrued liabilities and shareholder loans approximate their fair values due to the short-term maturities of these financial instruments. The carrying value of the notes payable and convertibile debentures approximate their fair value as they are discounted using a market rate of interest.

 

Loans receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The fair values of loans receivable are not materially different to their carrying amounts, since the interest rate on those loans is either close to current market rates or the loans are of a short-term nature.

  

36

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

22. Financial Instruments and Risk Management (continued)

 

Credit risk

 

Credit risk arises when a party to a financial instrument will cause a financial loss for the counter party by failing to fulfill its obligation. Financial instruments that subject the Company to credit risk consist primarily of cash, accounts receivable, marketable securities and loans receivable. The credit risk relating to cash and cash equivalents and restricted marketable securities balances is limited because the counterparties are large commercial banks. The amounts reported for accounts receivable in the statement of consolidated financial position is net of expected credit loss and the net carrying value represents the Company’s maximum exposure to credit risk. Accounts receivable credit exposure is minimized by entering into transactions with creditworthy counterparties and monitoring the age and balances outstanding on an ongoing basis. Sales to retail customers are required to be settled in cash or using major credit cards, mitigating credit risk. The following table sets forth details of the aging profile of accounts receivable and the allowance for expected credit loss:

 

As at   October 31,
2019
    October 31,
2018
 
    $     $  
Current (for less than 30 days)     1,038       343  
31 – 60 days     336       233  
61 – 90 days     295       73  
Greater than 90 days     2,355       334  
Loss allowance     (1,639 )     (128 )
      2,385       855  

 

During the year ended October 31, 2019, $100 in trade receivables were written off due to bad debts which is being included in general and adminstrative expense (year ended October 31, 2018 – $396). Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly.

 

The Company performs a regular assessment of collectability of accounts receivables. The Company monitors the financial performance and/or cash flows of its franchisees through observation of their point of sale system, receipt of cash from customers and maintains regular contact/discussions. In fiscal 2018, the Company reviewed the expected payment schedule and discounted it using an average franchisee credit adjusted rate of 11% resulting in the receivables being discounted by $475. For the year ended October 31, 2019, management reviewed the estimates and have created additional loss allowances for the Smokers Corner’s franchisee receivable of $1,136 and transferred $475 from discounts on accounts receivable to loss allowance.

 

    2019     2018  
    $     $  
Opening balance     128       109  
Expeected credit loss allowance     1,142       415  
Receivables written off during the year     (106 )     (396 )
Transfer from discounts on accounts receivables     475       -  
      1,639       128  

  

37

High Tide Inc.

Notes to the Consolidated Financial Statements

For the years ended October 31, 2019 and 2018

(In thousands of Canadian dollars, except share and per share amounts)

 

22. Financial Instruments and Risk Management (continued)

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company generally relies on funds generated from operations and equity financings to provide sufficient liquidity to meet budgeted operating requirements and to supply capital to expand its operations. The Company continues to seek capital to meet current and future obligations as they come due. Maturities of the Company’s financial liabilities are as follows:

 

    Contractual cash flows     Less than one year     1-5 years     Greater than 5 years  
    $     $     $     $  
October 31, 2018                                
Accounts payable and accrued liabilities     2,515       2,515       -       -  
Shareholder loans     36       36       -       -  
Convertible debentures     -       -       -       -  
Total     2,551       2,551       -       -  
October 31, 2019                                
Accounts payable and accrued liabilities     4,402       4,402       -       -  
Notes Payable     3,632       3,570       62       -  
Shareholder loans     701       701       -       -  
Convertible debentures     19,664       -       19,664       -  
Total     28,399       8,673       19,726       -  

  

Interest rate risk

 

The Company is not exposed to significant interest rate risk as its interest-bearing financial instruments carry a fixed rate of interest.

 

Foreign currency risk

 

Foreign currency risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company maintains cash balances and enters into transactions denominated in foreign currencies, which exposes the Company to fluctuating balances and cash flows due to variations in foreign exchange rates.

 

The Canadian dollar equivalent carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as at October 31, 2019 was as follows:

 

(Canadian dollar equivalent amounts of USD dollar and   October 31,     October 31,     October 31,     October 31,  
Euro balances)   2019 (Euro)     2019 (USD)     2019 Total     2018  
    $     $     $     $  
Cash     32       220       252       90  
Accounts receivable     136       285       421       522  
Accounts payable and accrued liabilities     (506 )     (492 )     (998 )     (218 )
Net monetary assets     (338 )     13       (325 )     394  

  

Assuming all other variables remain constant, a fluctuation of +/- 5.0 percent in the exchange rate between the United States dollar and the Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $11 (October 31, 2018 - $20). Maintaining constant variables, a fluctuation of +/- 5.0 percent in the exchange rate between the Euro and the Canadian dollar would impact the carrying value of the net monetary assets by approximately +/- $17 (October 31, 2018 - $Nil). To date, the Company has not entered into financial derivative contracts to manage exposure to fluctuations in foreign exchange rates. The Company had no balances denominated in Euros as at October 31, 2018.

  

38